CIMA F1 Syllabus C. Fundamentals Of Business Taxation - Direct Tax Features - Notes 1 / 4
This is Income tax and Capital Gains Tax
Income tax on Profits
Charged on TAXABLE profits
Taxable profits x tax rate
Taxable profit = Accounting profits +/- adjustments
The following expenses are not allowed
Therefore we adjust for these to INCREASE taxable profits
Entertaining
Depreciation / Amortisation
Taxes paid
DonationsAdjustments which DECREASE taxable profits
Tax depreciation (capital allowances) or balancing allowance
Deduct any Losses from the previous period
Illustration
| Revenue | 1,150 | |
|---|---|---|
| Cost of Sales | (700) | |
| Gross Profit | 450 | |
| Government Grant Income | 100 | |
| 550 | ||
| Entertaining | (75) | |
| Telephone | (10) | |
| Donations | (25) | |
| Stationery | (30) | |
| Travel | (35) | |
| Rent | (50) | |
| Depreciation | (80) | |
| Amortisation | (50) | (355) |
| Profit Before Tax | 195 |
Tax depreciation is 100
Grant income is NOT taxable
Tax is 25%
What is the tax payable?
Answer
Tax Payable: 225 x 25% = 56.25
| Accounting Profit | 195 | |
|---|---|---|
| Add back: | ||
| Entertaining | 75 | |
| Depreciation | 80 | |
| Amortisation | 50 | |
| Donations | 25 | 230 |
| Less: | ||
| Grant income | (100) | |
| Tax depreciation | (100) | (200) |
| Taxable Profit | 225 |
Tax Payable: 225 x 25% = 56.25