Question

Which of the following statements are true with respect to permanent differences?

A. Permanent differences affect both taxable income and accounting income in the same way.
B. Permanent differences arise due to items that are included in taxable income but never in accounting income, or vice versa.
C. Permanent differences are temporary in nature and typically last for a short period.
D. Permanent differences have no impact on the calculation of income tax liability.

Answer 1

Permanent differences in taxation refer to items that are included in taxable income but not in accounting income, or vice versa, leading to differences that do not reverse over time.

option 'c' is the correct

Step-by-step explanation:

With respect to permanent differences in taxation and accounting, the correct statement is that they arise due to items that are included in taxable income but never in accounting income, or vice versa. Permanent differences affect the computation of taxable income and accounting income differently and do not even out over time. Unlike temporary differences, which reverse and affect future tax liabilities, permanent differences are those that, as the name suggests, are non-reversing.

Option B, which states that permanent differences arise due to items that are included in taxable income but never in accounting income or the other way around, is the correct one. Option A is incorrect because permanent differences do not affect taxable income and accounting income in the same way.

Option C is incorrect because permanent differences are not temporary in nature; they do not resolve over time. Finally, option D is incorrect because permanent differences do have an impact on the calculation of income tax liability, affecting the timing and recognition of income or expenses.