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atluriram
atluriram, Research Analyst
Category: General
Satisfied Customers: 533
Experience:  MASTER OF COMMERCE, BACHELOR OF LAWS, P.G. DIPLOMA IN PERSONNEL MANAGEMENT AND INDUSTRAL COUNSELING
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A member of the board of directors of your company is concerned

Resolved Question:

A member of the board of directors of your company is concerned that the company's income statement reports income tax expense of $12.3 million, but the income tax obligation to the government for the year is only $7.9 million. How might you (as the corporate controller) explain this apparent discrepancy? (Keep in mind that this board member has a limited accounting background).
Submitted: 5 years ago.
Category: General
Expert:  atluriram replied 5 years ago.
Sir/madam

I herewith submit the answer

with regards
atluri ramesh

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NOTE TO THE SHAREHOLDERS
Out of three financial statements, the income statement is one of the financial statements. The income statement provides revenues and expenses for the specified period either quarterly or annually for the fiscal year. The expenses include operating expenses, interest expenses and income taxes. In fact the income tax is shown as obligation to pay but it is not actually paid amount by the company. In other words it is kept as reserve to pay the income tax after consolidations of all amounts and expenditures over a time. Hence definitely there will be variation from income tax expenses and actual payment of income tax.
Accordingly, the company created $12.3 million as income tax expenses. But actual obligation is $7.9 million. The differential amount i.e. $4.4 million can be utilized as retained earnings or the board of Directors can recommend for declaration of dividend. In case if $12.3 million not kept as income tax expenses, the company supposed to face in paying the income tax that will cause interference of IRS authorities. As a precautionary measure and in anticipation of huge profits, such excess of income tax expenses are created. Hence the creation of higher income tax expenses is justifiable.
atluriram and 37 other General Specialists are ready to help you
Expert:  atluriram replied 5 years ago.
Sir/madam

You can also use the mediafire link

with regards
atluri ramesh
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http://www.mediafire.com/?qh8u9d775fenoc0
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