In Relation to the Expense Associated with the Creation of an Allowance

question 44

Multiple Choice

In relation to the expense associated with the creation of an allowance for doubtful debts,the Australian Taxation Office:

• A) Never allows a deduction for taxation purposes for that amount.
• B) Allows a deduction for taxation purposes for that amount when it is recognised as an expense.
• C) Allows a deduction for taxation purposes immediately.
• D) Allows a deduction for taxation purposes only when there is a bad debt written off against a debtors account.
• E) Allows a deduction for taxation purposes if the probability of the debt not being repaid is greater than 50 per cent.

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Definitions:

Variable Costs

Costs that vary directly with the level of production or output, such as materials and labor, contrasted with fixed costs.

Indirect Costs

Expenses not directly tied to the production of goods or services, such as rent, utilities, and administrative salaries.

Direct Costs

Costs that can be directly attributed to a specific product or cost object without needing allocation.

Joint Costs

Expenses incurred in the process of producing two or more products at the same time, which cannot be easily attributed to individual products.