Company Reporting

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1. Introduction Accounting treatment for income taxes for for-profit entities is subject to Australian Accounting Standard Board (AASB) 112 Income Taxes. In accounting for income tax, complying with tax-effect method involves the occurrence of tax consequences due to different treatments are applied for transactions and other events happened inside an entity for accounting and taxation purposes, namely current tax consequences and future tax consequences. The purpose of this report was to identify and analyze the reasoning behind the responsibility of exploration and development costs (E&D) for the creation of a deferred tax liability (DTL) and its treatments for both accounting and taxation purposes. Moreover, the analysis was…show more content…
16). Certain TTDs are excluded rather being recognized as DTL under the standard, which includes initial recognition of goodwill or initial costs of acquisition of buildings (PricewaterhouseCoopers LLP, 2013). 2.5.2 Deductible Temporary Difference On the other hand, deductible temporary difference (DTD) will result in amounts that are deductible in calculating taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled (AASB 112, 2012, p. 16). 3. Gravatt Ltd – Case Study 3.1 Arguments Directors of Gravatt refused to comply with AASB 112 on tax-effect accounting as it would not necessary for income tax expense to be recorded directly into the accounts and rather put into the notes of financial statement. Furthermore, CTL and DTLs were not to be reported in financial statements as Gravatt was making tax losses due to great amount of allowable deductions for E&D and DTL should be recorded only when it is probable that Gravatt will be liable to pay income tax. 3.2 Analysis of the Validation of Directors’ Decisions 3.2.1 No Income Tax Expense Gravatt had declared a profit of $54 million, without tax expense, yet information regarding a notional income tax expense of $24.3 million, if it had
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