Can someone give a simple explanation of this? Dont’ get it.
They is nothing called Income Tax Only … --------------------------------------------------------------------------- When we calculate the Net Income there is two way of doing this: 1. Net Income calculated for Financial Reporting Purposes, and according to GAAP Principles … This one called “Pre-Tax Income” or “Accounting Profit” 2. Net Income Calculated for Tax purposed using Local Tax Regulation, … This one called “Taxable Income” Both of them Related to the income Statement … ----------------------------------------------------------------------- When we calculate the Value of our Assets and Liability , we also doing Either Accourding to GAAP or Tax Regulation 1. Carrying Amount: is the Value of our Assets and Liabilities according to Accounting Principle,… 2. Tax Based : Is the Value of our Assets and Liabilities According to Tax Regulation … Both of Carrying Amount (CA), or Tax Base (TB) used for Balance Sheet … ----------------------------------------------------------------------------- So, we use Pre-Tax Income and Taxable income for GAAP and Tax Regulations Respectively … and we use CA and TB for GAAP and Tax Regulations Respectively I hope you got the Idea …
Do the first example in the CFA text … I think it will make it much clear