Question

The amount of income taxes due to the government for a period of time is rarely the amount reported on the income statement for that period as income tax expense. (b) Explain the basic principles that are applied in accounting for income taxes at the date of the financial statements to meet the objectives discussed in (a).

Short answer

Financial statements are prepared by the finance department of each organization that reports the financial information in the form of tables and quantitative data.

Step-by-step solution

Introduction

Some of the basic principles that need to be followed by every organization under the IFRS and the GAAP are as follows. These are introduced so that the accounts prepared can be universally accepted across the globe.

Some of the basic principles are

(1) The amount of current tax liability or the tax expense is recognized to determine whether the firm needs to pay additional tax or is getting a refund.

(2) The amount of deferred tax asset or liability is recognized that arises due to the temporary differences in the amounts. It is recognized under the estimated income tax payable head.

(3) The accumulation of deferred tax assets or liability depends upon the provision made by the income tax law.