AFA 500 Lecture Notes - Lecture 2: Capital Cost Allowance, Deferred Tax, Deferred Income

• School: Ryerson University
• Department: Accounting
• Course: AFA 500
• Professor: Julie Mc Donald

Document Summary

Co(cid:373)pa(cid:374)ies" use the ter(cid:373) (cid:862)pro(cid:448)isio(cid:374)(cid:863) for i(cid:374)(cid:272)o(cid:373)e ta(cid:454) e(cid:454)pe(cid:374)se (cid:271)e(cid:272)ause (cid:449)he(cid:374) a (cid:272)o(cid:373)pa(cid:374)(cid:455) has a loss for tax purposes, the income statement entry for income tax may be a credit rather than a de(cid:271)it. Rather tha(cid:374) s(cid:449)it(cid:272)h the i(cid:374)(cid:272)o(cid:373)e state(cid:373)e(cid:374)t la(cid:271)el fro(cid:373) (cid:862)e(cid:454)pe(cid:374)se(cid:863) to (cid:862)(cid:271)e(cid:374)efit,(cid:863) (cid:272)o(cid:373)pa(cid:374)ies use the (cid:448)ague ter(cid:373) (cid:862)pro(cid:448)isio(cid:374)(cid:863) to fit all (cid:272)ir(cid:272)u(cid:373)sta(cid:374)(cid:272)es. Ifr does (cid:374)ot appl(cid:455) the (cid:449)ord (cid:862)pro(cid:448)isio(cid:374)(cid:863) to i(cid:374)(cid:272)o(cid:373)e ta(cid:454) e(cid:454)pe(cid:374)se or re(cid:272)o(cid:448)er(cid:455), although the (cid:449)ord is used in practice. Interperiod tax allocation deals with allocating tax expense to an appropriate year, regardless of when it is actually paid. One broad objective of accounting standards and accounting policies is to measure net income, which usually is the result of many accruals, interperiod allocations, and estimates. Because it is easier and more objective to assess tax when cash is flowing, tax policy generally favours taxing revenues and expenses on the basis of cash flows rather than coping with the results of accounting allocations.