Coporate accounting

ACCOUNTING FOR INCOME TAX
ABSTRACT
The purpose of this assignment is to focus on the treatment of income tax in the books of accounts of a company. A difference is created due to the taxable income which is calculated by using the income tax laws and the accounting which is calculated by using the corporations act and other accounting policies and standards. This assignment focuses n the treatment of this difference in the books of account. This also explains the various accounts of income tax that are reflected in the cash flow statement, income statement, and the balance of the company and the reasons for such difference in the figures. The amount of tax recorded in the income statement is different than the amount as recorded in the balance and the cash flow. This assignment reconciles the difference and explains the reasons for such a difference.
    Serial Number
    Contents
    Page Number
    1.
    Introduction
    1
    2.
    Concepts
    2-3
    3.
    Recognition Criteria
    4
    4.
    Amount of tax expense
    5
    5.
    Comparison of Accounting Income and Taxable Income
    6
    6.
    Reporting of Deferred Tax Assets and Liabilities
    7
    7.
    Comparison Between Income Tax Payable and Income Tax Expenses
    8
    8.
    Income Tax Expense VS Income Tax Paid
    9
    9.
    Temporary Difference and Permanent Difference
    10
    10.
    Insights
    11
    11.
    Conclusion
    12
    12.
    References
    13
INTRODUCTION
Caltex Australia Limited is a multinational company involved in the business of transport fuels and has the largest petrol and convenience network. The company has 94 bulk fuel storage and distribution hubs with more than 300km of fuel pipeline and 800 company controlled sites. In the year 2019, the company $260 million off-market buyout, and the employee engagement was 82% and had zero major land spills in the year. The company paid $7.5 billion in taxes and contributed $3.1 million to communities. Although the net profit after tax fell by 38% from 2018 the company shows great signs of growth and is in ASX’s top 50 companies as listed.
CONCEPTS
ACCOUNTING PROFIT
The amount of profit that is recorded in the books of accounts that is the income statement of the company is called accounting profit. The amount of profit or loss which is reflected in the income statement as the amount of profit before tax is called as accounting profit. This amount is calculated using the Corporations act, accounting policies, and various national and international accounting standards as issued from time to time (Frey, L. and Engelhard, L., 2017). This is the amount of profit the company reflects in the income statement after the deduction of expenses from the revenues.
TAXABLE PROFIT
The amount of profit on which the company has to pay the income tax to the government using the income tax rules and regulation is known as the taxable income. This is calculated using the accounting profit as the base and from which certain disallowances are added and certain allowances are deducted to reach the amount on which income tax is charged. This final amount is known as taxable profit.
TEMPORARY DIFFERENCE
As discussed above, accounting income is calculated using the Corporations act, accounting policies, and various national and international accounting standards and the income tax is using the income tax rules and regulations. Due to the calculation of profit by two different rules creates a difference. There are two types of difference that is a temporary difference and the permanent difference. Temporary difference is the difference that is capable of getting reversed in the future years against the profit or loss of the future years.
TAXABLE TEMPORARY DIFFERENCE
This is the type of temporary difference that is created when the amount of accounting profit is more than the amount of taxable income. Due to this the company has to pay less tax in the current year but the same has to be paid in future years. This leads to the creation of the deferred tax liability (Chang, C., Herbohn, K. and Tutticci, I., 2009).
Example: When the rate of depreciation is more in income tax laws and less in accounting rules.
DEDUCTIBLE TEMPORARY DIFFERENCE
This is the type of temporary difference that is created when the amount of accounting profit is less than the amount of taxable income. Due to this the company has to pay excess tax in the current year but the same has to be adjusted in future years. This excess payment of tax in the current year leads to the creation of the deferred tax asset(DTA).
DEFERRED TAX ASSETS
As discussed above, this is created due to the deductible temporary difference as the company has to pay excess tax in the current year. The amount of excess tax paid in the current year will be beneficial in the future years and less tax has to be paid in future years as the same will be adjusted in those years (Widiatmoko, J. and Mayangsari, I., 2016.).
DEFERRED TAX LIABILITY
As discussed above, this is created due to the taxable temporary difference as the company has to pay less tax in the current year. The amount of less tax paid in the current year will be beneficial in the current year and the same has to be paid in future years and therefore will be adjusted in those years.
RECOGNITION CRITERIA OF:
DEFERRED TAX ASSETS
Deferred tax asset(DTA) is an asset as the same is created due to past contributions which will give economic benefit in the future. Therefore this can be recognized as an asset in the financial statements. For recognizing the Deferred tax asset(DTA) in the financial statements, the company has to provide reasonable assurance that the company will be able to earn sufficient profits in the future so that the same can be adjusted in the future years. If the company cannot earn future...