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Unformatted text preview: Week 5 Practice Questions 10.1 Distinguish the following terms: accounting profit , assessable income , allowable deductions and taxable income . The terms are discussed on page 234: Accounting profit : The profit or loss reported in financial reports. It is the difference between the revenues and expenses recognised in the comprehensive profit statement for the reporting period. Recognition depends on the criteria in the Framework and the requirements of various accounting standards. This should not be confused with pre-tax accounting profit (loss). Pre-tax accounting profit (loss) : Also called profit before (income) tax expense (revenue). It is the difference between the revenues and expenses (other than income tax expense or income tax revenue) recognised in the comprehensive profit statement of the reporting period. Recognition, excluding income tax, also depends on the criteria in the Framework and the requirements of various accounting standards. It is called accounting profit in AASB 112, and can be described as the profit or loss before income tax, a term to be contrasted with taxable income – the amount on which income tax is determined under Australian income tax rules (called taxable profit or tax loss in AASB 112). Assessable income: Equivalent, under income tax legislation, of revenue (see glossary). It is sometimes referred to as tax revenue, that is revenue for taxation purposes. This meaning of tax revenue must not be confused with a negative income tax expense (the second meaning given in the glossary) (in AASB 112 the term tax income is used). Allowable deduction: Equivalent, under income tax legislation, of an expense (see glossary). It is called a tax deduction in AASB 112. It can also be described as a tax expense, which must not be confused with income tax expense (called tax expense in AASB 112). Taxable income: Under Australian taxation rules, the profit determined in accordance with those rules. A term to be contrasted with pre-tax accounting profit (see glossary). In this context, ‘taxation’ is limited to income tax and taxes that are similar to income tax such as capital gains tax. 10.2 Explain how differences arise between taxable income and accounting profit. The main difference is that taxable income does not include an equivalent of income tax expense (revenue) whereas accounting profit does include it. However, pre-tax accounting profit can differ from taxable income for the reasons listed on pages 236–238 – particularly table 10.1. Recall that in our general discussion we use the term income tax expense rather than tax expense, but when dealing with AASB 112, for simplicity we use the term tax expense that is adopted in that standard....
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This note was uploaded on 10/25/2011 for the course ACCT 5942 taught by Professor Diane during the Three '11 term at University of New South Wales.
- Three '11