Explain the reasons why, for a particular year of income, the total income received is usually different from total taxable income.

Why accounting income is different from taxable income.

  • Some income of capital nature e.g. capital gain is not taxable but it is part of accounting profits.
  • Accounting profits are determined after deducting depreciation but from taxable income, we deduct capital allowances.
  • Some accounting expenses are not allowable for tax purposes e.g. general provision for bad debts, capital loss, some legal fees etc.
  • Released and unrealized profits – for tax purposes, we recognize realized foreign exchange
    gains/losses but accounting profits recognize both realized and unrealized gains (losses).
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