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- April 11, 2019 at 7:58 am #511787
There are always a some differences between accounting profit and taxation profit
The difference may result in temporary difference and permanent differencesTemporary differences means difference in current period that will get adjusted in future period and the final net effect of the difference will be nil. The adjusting of this difference in future period is called reversal of temporary difference
for eg
Depreciation rate as per taxation law is 50%(due to tax benefits provided to the Organization by the government for operating in Backward area)
Depreciation as per IFRS 25% as per economic life of the asset
So there will be a temporary difference of 25% (50%-25%) in IFRS accounting and taxation accounting in 1st year and this 25% will get adjusted in future in IFRS as total depreciation has to be 100% in both the books and hence this 25% will get adjusted n future and adjustment will result in reversal of temporary difference.Permanent Difference are difference that will not adjust in future years for eg fine and penalties will not get adjusted against Taxation profit however it is deductible in books of Accounts and hence the fine will never get adjusted in taxation profit and hence this will remain a permanent differnce.
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