I failed twice and this is my third time studying the material and everytime I reach income taxes I can’t understand it very well. I feel I only understood 20% of it. How many questions I probably get in the exam from this reading? I am reading and watching videos for three days and everytime I just feel it is impossible for me to understand it. Is there any source other than IFT and Scheweser videos expalin this reading very well.
For example Tax base >< and yes it is not a big part but is too dificult ! I want to start non current liabilities but I keep thinking I have to understand Income Taxes before and it is wasting my time I think I will study it again at the end maybe will understand it later !!
The company creates 2 financial statements, one for the public using IFRS or GAAP (everything we studied in FRA) and another for the tax authorities, using the tax authorities standards, not IFRS and not GAAP).
For example, a company with a warehouse might use a accellerated depreciation model for tax reporting. This increased expense reduces ‘taxable income’ they show to the tax authority, and so they pay less tax (this year). The same firm with the same warehouse could use staight line depreciation in their financial statements… this lower expense means an increased ‘net income’ figure that they show to investors.
An item’s ‘tax base’ is it’s carrying value on the tax statement. In this example the ‘tax base’ is historical cost, minus accellerated depreciation and ‘carrying value’ is historical cost, minus straight line depreciation.
I’m starting the reading later today but it looks like the whole reading comes from the difference between financial statements and tax reporting