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Taxation Part 2 Notes

Accounting Notes > Accounting (Special Edition) Notes

This is an extract of our Taxation Part 2 document, which we sell as part of our Accounting (Special Edition) Notes collection written by the top tier of Acca students.

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Taxation - Part 2 http://www.youtube.com/watch?feature=player_embedded&v=RAF8HjYsj_g

Definition Tax payable refers to the tax liability recorded on the balance sheet as a result of taxable income. Tax payable is the amount of taxes that has not been paid but will be in the near term. Income tax paid is the actual taxes paid out of cash. This includes what was paid for this period and other periods during this accounting period. In other words Income tax is a compulsory contribution to state revenue, levied by the government business profits. Tax payable includes total taxes to be paid within the accounting period. simply it is equal to the amount of income taxes paid or payable for the period. It is calculated as: Income tax payable = taxable income x tax rate Why is it important?
Income tax is one of the most important source of government revenue, government collects income tax from the individuals and companies/ businesses for public expenditure to improve the standard of living of the public. Lecture Notes Adjustments for the change in tax rates

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Deferred tax assets and liabilities needs to be adjust according to the change in tax rates If tax rate increases deferred taxes will increase If tax rate decreases deferred taxes will decrease Increase in tax rates: When there is an increase in tax rates it will be favourable for the business if there is a deferred tax asset as the business will be offsetting more from the tax authorities and it is adverse for those having a deferred tax liability because now business will have to pay more. Decrease in tax rates: When there is a decrease in tax rates it will be favourable for the business if there is a deferred tax liability as the business will be paying less to the tax authorities than before and it will be adverse if there is a deferred tax asset because it means reduction of value towards the offset of future payments to tax authorities

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