Resolving Accounting Treatment And Tax Implication Issues For Business Corporation

Accounting Treatment and Tax Implication

We would like to thank you for this opportunity where we can resolve the issues that are being faced by the employees of the Business Corporation. It is our duty where we aim at resolving all the queries as well as roadblocks that are being faced by our clients. The issue relates with the accounting treatment along with the implication of tax activities of the transactions that is entered into by the clients by following the statutory requirements. As far as statutory requirements are concerned, it involves all the accounting standards as well as provisions that are already mentioned by the Corporation Act 2001. Keeping your request, we have given due diligence to the disclosure as well as reference of the sources from where the information relating to accounting treatment of the item being collected. Below are the response of your queries that are mentioned below with proper justification:

1. In case of correct accounting, it is important to conduct valuation as well as disclosure of such assets as mentioned in the financial statement of companies

The above guidelines for this given aspect had been mentioned in the AASB 116. Based on the guidelines, it can be seen that there are different matters that that need to be taken into concern for undertaking decision in this aspect:

1. It is the responsibility of the management to make sure that the residual value as well as useful life of the assets for reviewing at least at the end of every annual reporting period. In addition to that, the current data give rise to various expectations as compared to initial estimations where all the changes shall have to be accounted for by the management as it changes with the estimations. Therefore, it is important for the management to look at the matter and relate it based on with the provisions as mentioned in AASB 108 (Scott 2015).
2. The next guidelines that need to be taken into account is depreciation of the assets that should be revised as well as recorded based on the change in the situations unless and until the residual value of the assets fails to exceed its carrying value amount.
3. In case of principles that is applicable in accounting for the purpose of treatment of income tax, it can be seen that there are differences noted between taxable income as well as profits and their subsequent disclosure and detailed explanation to the shareholders

It is important to consider the fact that there are various principles that can result in understanding a difference in the amount of the taxable income as well as profit that are being earned by Business Corporation. In addition to that, it can show the transaction or the treatment of the account that result in detecting such differences and for that references are being made to AASB 112. However, the standard explain about several reasons that can result in getting taxable temporary differences. Therefore, there are several reasons that are listed below that shows the differences in the taxable treatment of the Business Corporation (Oulasvirta 2014).

1. There are several instances that can be cited when expense as well as profit earned by Business Corporation gets linked with specific component of the financial transaction as entered into by the business for one specific time frame. However, the same had been mentioned in the taxable income of the Business Corporation in some other time frame. There are several types of differences seen and considered as timing differences and some of the examples are listed below when timing differences may takes place with proper justification:

• The interest revenue earned by Business Corporation need to be mentioned as per time proportion on the basis. However, in case of given judgment, it had to be inclusive in the taxable income only after the cash receipts
• The depreciation that is being used for determining the profit as well as loss of the Business Corporation that is significantly different from the depreciation as being used by the Business Corporation (Brown et al. 2014). In addition to that, the temporary differences can be detected because of the difference that is present in the carrying amount of the asset as well as its corresponding tax base. However, the tax base of the asset had been obtaining at the time of conducting such deductions from its cost as it is declared by the Taxation Authorities for evaluating the taxable profit for the present year as well as previous periods.
• As far as development cost is concerned, it is being incurred by the Business Corporation and at the same time capitalized as well as amortized for given future period for the purpose of evaluating the accounting profit. However, the taxable profit for the same had been detected in the year in which it is being obtained for such purposes, therefore, the tax base linked with such expenditures is nil where the same have already been deducted from the taxable profit.

1. The identifiable assets as well as liabilities had been acquired by Business Corporation from the acquisition made by it and even recorded by the business based on provisions as mentioned in the AASB 3 Business Combinations but the company has not made any equivalent adjustment in that context.

• On analysis, it can be seen that there had been no equivalent adjustment made based on the revaluation as it is being carried out by Business Corporation for the purpose of tax related activities.

1. It is noted that there are no differences present between the initial carrying amounts of the assets or liabilities as well as tax base of the asset or liabilities and this can be done at the time of initial recognition. It can be stated by an example where the received benefit is done by business entity from a non-taxable government grant in respect of the assets at the same time
2. It can be seen that there are differences present in the carrying amount of the investments that are being obtained as conducted by Business Corporation in the subsidiaries, branches as well as associates in respect of interest in the joint arrangements as well as tax base of the interest investments in the most appropriate way.

Disclosure requirement

On critical analysis, it is noted that the disclosure requirements are mentioned where there is difference present in the temporary taxable activity as mentioned in the paragraph 81 of the Standard. Based on the directions or in that case guidelines of the standard, it can be seen that the guidelines have to be dealt with certain items that are mentioned below with proper justification:

1. It can be seen that unused tax losses as well as unused tax credits are the amount that represents the deductible temporary differences in relation to the aspect where there will be no deferred tax assets can be obtained in the statement of financial position
2. It can be seen that the total amount corresponding to the temporary differences are those differences that is being linked with the investments in the subsidiaries as well as branches and associates and interest in joint arrangement where there is no deferred tax liability had been obtained

• In this, each of the type of temporary differences are mentioned in relation to each type of unused tax losses as well as unused tax credits.
• Recognition had been done for the deferred tax assets as well as liabilities as shown in the financial position for each of given time frame presentation
• Recording is being done on the amount in respect of deferred tax assets as well as liabilities as it is being obtained in the profit and loss. It is for this case where changes can be seen in the amount as it is being mentioned in the statement of financial position
• As far as deferred tax benefits is concerned, it is noted that it had to be received by the Business Corporation in respect to acquisitions done and even not being recorded at the time of acquisition date. These are being recorded after the date of acquisition where the companies need to present detailed analysis of the situation or the events that results in recognizing deferred tax benefits.

From the above explanation, it can be stated that the above details are way more sufficient as it can address the problems that are faced by the employees. In order to implement the advice, it is recommended to check over the authencity of the advice as it is being mentioned in this aspect where the accounting standard as well as paragraph are there for treatment of provisions and providing with the accounting transactions at the same time. Thus, the employees can refer to the provisions that are already being stated out in the provisions of the accounting standard.

Reference

Brown, P., Preiato, J. and Tarca, A., 2014. Measuring country differences in enforcement of accounting standards: An audit and enforcement proxy. Journal of Business Finance & Accounting, 41(1-2), pp.1-52.

Oulasvirta, L., 2014. The reluctance of a developed country to choose International Public Sector Accounting Standards of the IFAC. A critical case study. Critical Perspectives on Accounting, 25(3), pp.272-285.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.