ACCA Strategic Business Reporting (SBR) Practice Exam

In the context of timing differences, what is being compared?

1. Taxable profits and total comprehensive income

2. Income and expense vs. capital gains

3. Profit before tax and net profit

4. Revenue and cash receipts

The correct answer is: Taxable profits and total comprehensive income

The topic of timing differences often involves comparing taxable profits to total comprehensive income. Taxable profits refer to the earnings that are subject to taxation in a given period, while total comprehensive income encompasses all changes in equity during a period except those resulting from contributions by and distributions to owners. This includes not just the profit for the year but other comprehensive income items, such as revaluation gains or losses. The timing differences arise because accounting principles allow certain revenues and expenses to be recognized in financial statements in periods different from when they are treated for tax purposes. For example, some expenses may be deducted for tax purposes when they are incurred, while the corresponding accounting expense may be recognized at a different time. Understanding this relationship is crucial for preparing the financial statements and tax returns accurately, as it helps in reconciling financial accounts and ensuring compliance with accounting standards and tax regulations. Hence, the comparison between taxable profits and total comprehensive income is fundamental to understanding how timing differences impact the assessment of a business's financial performance and tax liabilities.