Increase in Provision

Increase in Provision for Cambodia Tax

Increase in Provision is expense for accounting purpose ,but Cambodia Tax does not recognize this expense as deductible expense for tax on income ( profit) purpose.

In practice, some companies make warranty policies for goods sold to customers. Warranty expenses for computer, car, motor repair etc with specific period after sale, but we do not be sure whether customers come to repair these inventories or not and how much we will spend for repair. For Accounting standard, it required us recognized estimated amount as expense ( provision) when we sold inventories to customers, but Cambodia Tax law does not allow these expense are deductible expenses unless they inured physically.

Example 1

XYZ Computer Company sold computers of $22,000 on November, and company has policy for repair warranty for 3 months if commuters have problem during warranty period.

Required

Assume that XYZ estimated that 2% of sale is repair expense that customers will come to repair their computers, calculate estimated expense ( provision for repair warranty) and make conclusion for tax treatment.

Answer 

Estimate expense  ( provision for repair warranty) for computers = $22,000 x 1%=$220

It is expense for accounting purpose but Cambodia Tax Law does not allow this amount ($220) as deductible expense unless customers come to repair.