Question

Which of the following statements is correct regarding permanent differences under IFRS?

a. Permanent differences result from items that enter into pretax financial income but never into taxable income.
b. Permanent differences result from items that enter into taxable income but never into pretax financial income.
c. Permanent differences affect only the period in which they occur.
d. All of the choices are correct.

Answer 1

Permanent differences under IFRS result from items that enter into taxable income but never into pretax financial income. Examples include tax-exempt income and non-deductible expenses. Temporary differences, on the other hand, are expected to reverse in the future.

Step-by-step explanation:

Under IFRS (International Financial Reporting Standards), permanent differences result from items that enter into taxable income but never into pretax financial income. This means that these items affect the tax calculation but do not impact the company's financial reporting. Examples of permanent differences include tax-exempt income, such as interest from municipal bonds, and non-deductible expenses, such as fines and penalties.

On the other hand, temporary differences arise when items enter into both pretax financial income and taxable income, but at different times. Temporary differences usually reverse in subsequent accounting periods, resulting in future tax consequences.

Therefore, the correct statement regarding permanent differences under IFRS is: a. Permanent differences result from items that enter into taxable income but never into pretax financial income.