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ASB and the Corporations Act

   

Added on  2020-03-04

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ASB and the Corporations Act_1
2Thank you for the phone call. As per our discussions and agreement, I am mailing you theaccounting solutions that we have already discussed about, previously. The answers have beengiven based on the AASB and the corporations Act. Answer 1 I have gone through your mail and there you have discussed about the concerns of the directorsas portrayed in the Board meeting. There you told me that there are several issues to be lookedinto: Importance of temporary differences There are substantial differences between the two accounting principles, namely the financialaccounting rules and that of the tax accounting rules. Due to the presence of substantialinconsistencies between these two rules, some revenues and expenses are either under receivedor over paid. The simple example of this can be as follows: A company may have expense of 10000 monetary units, which it incurs in 2017 but it may sohappen that the income of the company is taxable income for the previous year. Thus, there maybe two types of the temporary accounts, one of which is that having future taxable amount andanother one being the one comprising of future deductible amount. DTA relevance A deferred tax asset is regarded as a situation where an enterprise has overpaid the tax expenseactually incurred. Thus, the balance sheet of the company, in this case shows advance taxpayment. This additional tax amount, however, is returned to the company in the next period. Asthis amount is returned to the company, it is known as DTA. DTL relevance
ASB and the Corporations Act_2
3The DTL is regarded as the tax expense of the company, which though is needed to berecognized by the company, but has been postponed by the company for some reason. Thus, itcan be said that the tax expense of the company has been shifted from current period to futureperiod. Thus, in this case the company is seen to have its obligation to pay the tax amount. Ingeneral, the difference between the GAAP (generally accepted accounting principles) and the taxaccounting gives rise to the DTL. This helps the company to create a better position for itself infront of the stakeholders of the company. This will also save the company from the contingentliabilities. Further, displaying of muted position, on part of the company, can prove to bebeneficial for itself. It is important to account the deferred tax position within the accounting statements so as toassure that financial statements depicts true and fair position. The DTA and DTL are recognizedon the basis of the temporary differences. This temporary difference is on the tax, it can be saidthat when there is a difference between the accounting rules and the taxation rules in that caseDTA or DTL should be recognized. It indicates the liabilities and assets of the company whichneeds to be paid and received in near future. The difference between the accounting principlesand the taxation principles give rise to the temporary differences. This is essential to recordbecause it indicates the financial burden of the company. Current tax on the other hand represents the estimation of the company, which has been reportedby the company in its tax return of the present year. Temporary book differences within thefinancial statements arise due to the disparity between the company's current tax expenditure andits total amount of tax expenditure. These disparities within the financial statements are knownas deferred tax expenses.
ASB and the Corporations Act_3

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