Accounting Depreciation for​ Tax on Income / Profit

Lesson Summary-Accounting Depreciation for Cambodia Tax

Accounting Depreciation is non-deductible expense for Tax on Income(profit). Many companies have different accounting policies for each depreciation of each fixed asset.

Assume ABC company has accounting policy for depreciation expense of building at 10% while XYZ company has accounting policy for depreciation expense at 8%. Cambodia Tax Law do not recognize accounting depreciation expense for each company ( ABC or XYZ) as deductible expenses because Cambodia Tax Law has different depreciation rate for building. Depreciation expense for building is 5% using straight line (SL) under Cambodia Tax Law.

Example 1

ABC company has two computers of $2,000 and depreciated 4 years using straight line.

Required:

1. Calculate depreciation expense
2. Recommend whether this depreciation expense is deductible or non-deductible expense for tax on income (profit)

Answer 

1.Depreciation Expense 

Depreciation expense = $2,000/4=$500 per year

2.Deductible expense or non-deductible expense 

This amount ($500) is depreciation expense for accounting purpose showing in income statement ( profit or loss account) but Cambodia Tax Law did not recognize this amount as deducible expense for tax on income(profit). Amount that Cambodia Tax Law recognized is $1,000 ( $2,000 x 50% declining/reducing balance method at rate 50%), so you may feel luckily because you got much depreciation tax ($1,000) than accounting depreciation ($500). Some cases and accounting policies make you may feel luckily.

Learn More : Tax Depreciation