Question

accounting items are treated differently under tax legislation than under accounting standards

Answer 1

Yes, accounting items are treated differently in tax laws than these items are treated under accounting standards.

Let us take few examples of it-

• Depreciation under accounting may be calculated under various method like SLM, WDV, Unit of production.But in direct tax depreciation can be calculated as per MACRS method of depreciation.
• In accounting,IAS 16 allows company to have revaluation of asset but in tax laws,no asset can be revalued or impaired.This mean only actual profit and loss incurred during the period shall be allowed.
• Like wise we can take a example of various provisions, in accoutning the corporations are free to create provision for various employess benefits within the forcorner of AS's.However the tax laws does not allows any such provision.

Main reasons of differential treatment under both the framework are-

The main reason for differential treatment is unethical business practices by corporates and lack of funds in the government treasure.

If tax laws are made inline with the accounting standards then government may have no fund or very less fund (i.e cash collection from the taxpayers will be less).

Here the Framer of accounting standards and the framer of tax laws are different.Since each Act is enacted to have some public and government benefits,however the AS's are prepared to made the simplification and understandable format and items of financial statements.

In an overall conclusion it can be said that there is difference in treatment of different items in tax and accounting standard,as both are build on different concept,where the foundation of As's are on accrual,consistency and matching concepts.

Please comment for any other explanation.

Thanks,