Question

In: Accounting

Explain the following terms as they relate to assets: (a) carrying amount (b) deductible temporary differences...

Explain the following terms as they relate to assets:

(a) carrying amount

(b) deductible temporary differences

(c) taxable temporary differences

(d) tax base.

Solutions

Expert Solution

Carrying Amount

Carrying Amount is the amount at which an asset is recorded in the books of the company as reduced by any accumulated depreciation or impairments. This is also called book value.

Tax Base

Is the amount of asset or income which will be subject to taxation.

Deductible Temporary Differences

A temporary difference is a difference between the carrying amount (book value) of an asset or liability and its tax base. This can happen where different depreciation methods are followed in the books vis-a-vis taxation.

Deductible Temporary difference will be something where the temporary difference will yield reductions in taxation in the future. It means there will be an extra deduction in the future because of this temporary difference now. In other words, less tax in the future.

Taxable temporary Difference

On the other hand, a taxable temporary difference would be something that would lead to an increase in taxable amounts in the future and will lead to more tax in the future. This is in the nature of deferred tax i.e. tax will be paid in the future.

ekkarill92 answered 2 years ago
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