pply intraperiod tax allocation. Classify deferred tax liabilities and assets. 19-1 Overview and Definitions 1. Significant differences normally exist between a company’s pretax financial income and taxable income because generally accepted accounting principles are used to measure pretax financial income while the Internal Revenue Code and state tax laws are used to determine taxable income for purposes of paying income taxes.
These differences stem from the different objectives of generally accepted accounting principles and of tax laws. The objective of generally accepted accounting principles is to provide information useful to present and potential users in making rational investment, credit, or similar decisions. However, the objectives of the Internal Revenue Code are to raise revenue to operate the government and to assist the government in achieving social or economic goals.
Interperiod Income Tax Allocation: Basic Issues 2. Differences between a corporation’s pretax financial income and taxable income are a result of either permanent or temporary differences. The three types of permanent differences are: (a) revenues that are recognized for financial reporting purposes but are never taxable, such as interest received by a corporation on an investment in municipal bonds and proceeds received from life insurance policies on key officers;
(b) expenses that are recognized for inancial reporting purposes but are never deductible in calculating taxable income, such as premium payments on officers’ life insurance and fines related to the violation of a law; and (c) deductions that are allowed for taxable income but are not allowed as expenses under generally accepted accounting principles, such as percentage depletion in excess of cost depletion, and certain dividend exclusions for investments in equity securities.
The Term Paper on Introduction To Financial Accounting
(a)The Corporations Act The requirements of companies legislation differ from country to country. In Australia, the legislation governing companies is contained in the Corporations Act (2001). The Corporations Act is concerned primarily with what financial information companies should disclose in their financial reports to shareholders, rather than with how specific financial transactions are to ...
