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CMA Intermediate · Financial Accounting · Accounting for Taxes on Income (AS 22)

Which statement reflects why taxable income may differ from accounting income under AS 22?

Taxable income differs from accounting income because items of revenue and expense may be treated differently for tax, and because the amount recognised for an item in the accounts may differ from the amount recognised in computing taxable income.

  1. AItems of revenue and expense may be treated differently for tax, and the amount recognised for an item may differ from that in taxable incomeCorrect
  2. BTax law always follows the accounting treatment exactly
  3. CDifferences arise only from the rate of tax
  4. DDifferences arise only because of audit adjustments

Explanation

AS 22 gives two reasons: items treated as revenue, expense or deduction differ for tax purposes, and the amount of a particular item recognised in accounts differs from the amount used for taxable income. Rate and audit are not the reasons given.

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