AKP Ltd Uses the Accrual-Basis Method of Accounting for Accounting

question 55

Multiple Choice

AKP Ltd uses the accrual-basis method of accounting for accounting profit. In the current accounting period, they have recognised income for interest not yet received. Taxable income is determined on a cash basis. Based on this information, which of the following statements is correct?

• A) Taxable income will be greater than accounting profit, and will give rise to a deferred tax liability.
• B) Taxable income will be less than accounting profit, and will give rise to a deferred tax liability.
• C) Taxable income will be greater than accounting profit, and will give rise to a deferred tax benefit.
• D) Taxable income will be less than accounting profit, and will give rise to a deferred tax benefit.

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Definitions:

Interest Rate

The percentage charged on a loan or paid on deposits over a specific period of time, reflecting the cost of borrowing or the return on savings.

Consumes

The act of using up a resource or goods in the process of satisfying human needs or wants.

Utility Function

A utility function is a mathematical representation that assigns a level of utility or satisfaction to combinations of goods and services consumed.

Income

Refers to the income earned, either periodically or consistently, from employment or investment ventures.