Hi, I'm getting rather confused by some of the wordings used for IAS 12. I've re read through my study text and tried the internet to no luck.
If a point states: other intangible assets were development costs which were all allowed for tax purposes when the cost was incurred.
What in simple terms does "allowed for tax purposes mean"
I know it results in having no tax base but I do not understand why exactly.
Is this the same as another point which states "this amount is allowed for taxation when paid"
In the answer neither have a tax base.
Any clarity would be good.
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Allowed for tax purposes
"What in simple terms does “allowed for tax purposes mean”" means that the taxman will allow them as a tax deductible matter to be deducted from profits before tax in arriving at taxable profits
For development expenditure which is "allowed for tax purposes when the cost was incurred" is distinguished from "“this amount is allowed for taxation when paid”
The difference is the timing of when the expense is deductible. In the first example, the allowance is used in the period in which the expense is incurred (accruals basis) whereas in the second example it is allowed when actually paid (cash basis)
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