XYZ operates in Country A where tax rules state that entertaining costs and donations to political parties are disallowable for tax purposes.
XYZ calculated both its accounting and taxable profits for the year ended 31 December 20X2 after deducting $10,000 of entertaining costs.
It is considering what impact the ruling that "entertaining costs are disallowable for tax purposes" will have on its two profit figures.
Which of the following correctly states the impact of the ruling on the profits already calculated?
A . Accounting profit will not be affected but taxable profit will increase by $10,000.
B . Both accounting and taxable profits will increase by $10,000.
C . Accounting profit will decrease by $10,000 and taxable profit will increase by $10,000.
D . Both accounting and taxable profits will decrease by $10,000.
Answer: A