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Hello Sir. I get comfused with the wording when solving TX queations. For example, the books says that XYZ expense is allowable deduction and this is why I dedcut it from the profit but when I look at the answer the book has put zero instead of deducting it as if it is an exampt benfit. I would kindly ask you to let me know the meaning of the following terms:
Allowable
deductable
exemptFrom what you have said I do not think you have understood the concept of adjustment of trading profits – we are not producing a new taxation statement of profit or loss – we are adjusting the accounting net profit to make it acceptable for tax purposes
If an expense is allowable and it has been deducted in computing the accounting profit then there is NO adjustment required! If an expense is not allowable then we will add it back to the accounting profit.
Have you worked through the lectures?Yes sir. I have been through your lectures and I think i understand the concept of adjusting trading profits. I got confused when i did corporate taxation. Impaired trade debt. Where it says allowable deductiin but does not deduct it. . I will put it this way.
I would like to understand the difference between the two terms. tax allowable and tax deductable.
Thank you sir for the reply.
There is no difference between the terms – tax allowable expense and tax deductible expense.
I repeat my original answer above – please read it carefully – the accounting net profit has already been reduced by the expenses in the statement of profit or loss – if they are allowable expenses there is NO adjustment required – you do not deduct the expense again!
If the expense is not allowable then it must be added back to the accounting profit.
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