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1.One place in bpp book states accrued income will never be taxable and one place that interest received in arrears will be included in taxable profit on cash bases???
2. Are transaction costs on loan payable deducted from taxable profit if yes when?(there to is a conflicting answer to this in bpp)
3. Why does the discount on compound instrument give rise to a taxable temporary difference when discount only hits the accounting profit it doesn’t hits taxable profit so why it isn’t a permanent difference?
Dude answer to your first question is that temporary differences arises due to a difference in the carrying value of a particular thing and its tax base, in your case which you stated, accrued income gives rise to a temporary difference, as it is recognized in accounts but not taxed as income, as it is not received yet. so a deferred tax liability is recognized on this temporary difference. WHEN THE INTEREST IS FINALLY RECEIVED AND IS IN ARREARS THEN NO TEMPORARY DIFFERENCE IS CREATED AS BOTH ARE RECOGNIZED IN ACCOUNTS AND ALSO IN TAXABLE PROFITS.
THE BASIC PRINCIPLE IS THAT TAX IS PAYABLE ON CASH BASIS,BUT MY FRIEND ACCOUNTS ARE PREPARED ON ACCRUALS BASIS…AND ACCRUED INCOME NEVER ALWAYS MEAN THAT INCOME IS ACTUALLY RECEIVED.
That’s been answered by lovesweety (did I actually type “lovesweety”) UGH!
I really would not like to answer your second question!
Your third question is that, when unrolling a discounted amount, yes, that’s an accountant’s way of allocating the interest cost. But that’s not a permanent difference – surely the expense involved by unrolling is matched against the taxman’s idea of the costs of financing / servicing that compound instrument
So they recognise it when loan is payed? What about if the debt is converted to shares?
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