One of the fundamental areas in tax is adjustment of profits. This is because taxable profits is not the same as accounting profits.
Typically, you are given the accounting profits and have to find taxable profits. You need to bear in mind that the accountant has already deducted all the expenditure and brought in all the income in the statement of profit and loss.
The first thing you need to do is add back any disallowable expenditure because only expenses wholly and exclusively incurred for trading purposes can be deducted when finding taxable profits
The common expenses in most exam questions that you need to disallow include depreciation, business entertainment, capital expenditure and withdrawals of profit.
Next, you need to deduct any non-trading receipts as this is taxable separately such as investment income and capital gains.
Finally, you need to compute tax depreciation or capital allowances and claim this standard tax deduction as opposed to the accounting depreciation which was disallowed earlier.
If you are planning on doing Tax or Advanced Tax in March, I recommend you purchase the condensed notes to learn all the technical areas efficiently.
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