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XYZ operates in Country P where the tax rules state entertaining costs and accounting depreciation are disallowable for tax purposes.
In year ending 31 March 20X4, XYZ made an accounting profit of $240,000.
Profit included $14,500 of entertaining costs and $5,000 of income exempt from taxation.
XYZ has plant and machinery with accounting depreciation amounting to $26,300 and tax depreciation amounting to $35,200.
Calculate the taxable profit for the year ended 31 March 20X4.
Suggested Answer: D
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28 comments · newest first
SI
Silvana
8 months ago
Right! And then we adjust for depreciation differences. I think the answer is A) $221,600.
CL
Claudia
8 months ago
Don't forget the exempt income! We should subtract that $5,000 too.
OD
Odette
8 months ago
Agreed! We need to subtract the $14,500 entertaining costs from the profit.
AR
Arlie
9 months ago
This question is tricky! I think the entertaining costs will really affect the taxable profit.
MA
Martina
9 months ago
I thought entertaining costs were always deductible!
RO
Royal
9 months ago
Not sure about that calculation, seems off.
ME
Merlyn
9 months ago
Wait, how does the exempt income factor in?
VA
Valentine
9 months ago
Totally agree, that makes sense!
RO
Rosann
9 months ago
This question is making me hungry. I could really go for some entertaining costs right about now.
DE
Denae
10 months ago
Ah, the classic tax depreciation vs. accounting depreciation conundrum. I better brush up on my tax rules before attempting this one.
LO
Loreta
10 months ago
Hmm, the entertaining costs and accounting depreciation being disallowed for tax purposes is a tricky part. I'll need to make sure I account for that correctly.
LA
Lajuana
10 months ago
This looks like a straightforward tax calculation question. I'll have to double-check the adjustments for the disallowed expenses.
ST
Staci
10 months ago
If I recall correctly, the taxable profit should be calculated by taking the accounting profit and making those adjustments.
HU
Hui
10 months ago
I think we also need to subtract the exempt income from the accounting profit. That sounds familiar from practice questions.
XU
Xuan
10 months ago
Taxable profit is $239,400.
HE
Helaine
11 months ago
I'm a bit unsure about how to handle the depreciation differences. Do we add or subtract the tax depreciation?
NO
Noah
11 months ago
Wait, did they say the income was exempt from taxation? I better make sure I understand how that affects the taxable profit calculation.
BE
Benedict
11 months ago
I remember that we need to adjust the accounting profit for disallowable expenses like entertaining costs.
GA
Gail
11 months ago
This seems straightforward enough. I just need to remember to use the tax depreciation number and not the accounting one.
VI
Virgina
12 months ago
I'm feeling pretty confident about this one. The key is to make the adjustments for the disallowable and exempt items, and then use the tax depreciation figure instead of the accounting depreciation.
HE
Heidy
12 months ago
Okay, let's break this down step-by-step. First, we start with the accounting profit of $240,000. Then, we add back the $14,500 of entertaining costs since those are disallowable. Next, we subtract the $5,000 of exempt income. Finally, we need to use the tax depreciation of $35,200 instead of the accounting depreciation of $26,300.
CL
Clarence
12 months ago
Hmm, I'm a bit confused about the tax depreciation. Do we need to add that back or subtract it?
AN
Anastacia
1 year ago
I think I've got this. We need to start with the accounting profit and then make the necessary adjustments for the disallowable expenses and the exempt income.
DA
Dalene
7 months ago
So, what's the final taxable profit then?
LE
Leota
7 months ago
And we should exclude the exempt income too.
CH
Chandra
7 months ago
Don't forget to add back the tax depreciation!
BR
Brandon
7 months ago
Right, we need to subtract the entertaining costs.
RE
Rebecka
7 months ago
Let's adjust the accounting profit first.