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Dear Sir,
Can you please tell me what should I understand when in the scenario is mentioned that: “the Company has no provision to offset tax allowable depreciation”?
Thank you in advance,
SimonaIt seems strange wording for the exam. Please tell me which exam question you have seen it in so that I can see the context of the statement.
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Actually I found this in a Technical article called “international project appraisal” where is given an example on how to approach an international project question. The question was about a Company that wants to develop a project in a developing country and concludes a contract with the Gov. of that country. The question sais that the Gov. taxes profits at 40% and this is to be paid in the year that the profit is earned and also that the Gov has no provision to offset tax allowable depreciation…
Now your question makes sense 🙂
Tax is charged on the profits after subtracting the tax allowable depreciation (capital allowances). If the particular government has no provision for this, then tax would be charged on the profits before any tax allowable depreciation (because there won’t be any 🙂 )
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Sir, thank you.
Actually the word “provision” puzzled me. I was thinking “provision” is Dr provision expense in the PL and Cr Provision acc in the BS (IFRS rules). Actually means that the Gov rules are not to allow for tax all. Depr.So silly from my side ?
Thank you again,
Simona
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