Timing Difference Approach is used to account for the impact of differences over the income statement. In this approach, we add back the accounting depreciation into the accounting profit to arrive at before depreciation profit figure. After that, we deduct the tax depreciation from this profit figure and multiply the tax percentage to calculate the income tax of the company.
Example
Alpha has a profit of $800,000 and the applicable tax rate is 30{1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}. The accounting and tax depreciation are $50,000 and $75,000 respectively. Calculate tax figures for the year.
Answer/ Solution
| $000 | |
| Accounting profit | 800 |
| Add: Accounting depreciation | |
| Less: tax depreciation | |
| Taxable profit | |
| Tax – 30{1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} | |