Depreciation is considered as accounting policy and operational expense for the accounting period. The value to be included in the financial statement is calculated based on the decision of the Board.  (a)  You are required to:  (i) Explain the difference between capital expenditure and revenue expenditure, and how each type of expenditure will affect the financial statements of a business. (ii) Explain why it is important to distinguish between capital expenditure and revenue expenditure, and briefly explain the accounting treatment of each type of expenditure. (iii) Under what circumstances will you consider the reducing balance method as the most appropriate method in calculating depreciation?                                       (b) Does depreciation decrease cash in a business? Explain your answer.

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.