Chapter 19, Problem 1CA

To determine

Income tax: An amount payable to the government for the income earned during a specific period of time after deducting the permissible deductions is termed income tax.

Taxable income: Income that is computed after deducting all allowable or permissible deductions from the pretax financial income is called taxable income. In other words, the income which is eligible for computing the tax liability is taxable income.

• (a)

To understand: To understand the objectives in accounting for income taxes.

To determine

• (b)

To understand: To understand the basic principles applied in accounting for income tax.

To determine

• (c)

To understand: To understand the computation of deferred income taxes.

Deferred income tax: The difference between the actual taxable liability and the books of records maintained by the individual, firm, or an entity is termed deferred income tax. The difference is created due to the tenure of transactions or actual performance of transactions, flow of funds into the business, or changes in the value of the asset or liability due to business situations. These differences are adjustable in future when the appropriate time for the transaction arises.