Accounting For Income Tax Flashcards
Deferred method
The tax effects of income tax allocation are deferred currently and current tax rates are used
State and municipal bond interest income: include in book income but not included in taxable income
Example of a Permanent Difference
Interperiod income tax allocation
The treatment of tax effects of extraordinary items, disposal of a segment of a business, and discontinued operations.
The deferred income tax expense or benefit
The sum of the net changes in the deferred tax assets and deferred tax liabilities
Assets and liability method
Recognizes a deferred tax liability (or asset) which represents the amount of taxes payable or recoverable in future years as a result of temporary differences at the end of the current year.
Permanent difference causes differences in ____ net income and ____ net income.
Book, tax
Temporary Differences
Transactions affect book income in one period and taxable income in another.
ASC 740 Accounting for Uncertainty in Income Taxes
Creates a model to address uncertainty in income tax positions. It also removes income taxes from ASC 450, Accounting for Contingencies.
Main IFRS Difference in Accounting for Income Taxes
IFRS requires the use of the “liability method” for deferred taxes
Permanent difference
Arises when revenue are exempt from taxation or expenses are not allowable as deductions for tax purposes.
Income tax expense should be reported in two components:
The amount currently payable (current portion) and the deferred portion
Net of Tax Method
The tax effects under either the deferred or liability method are recognized in the valuation of assets and liabilities and the related revenues and expenses.
Deferred tax expense or benefit
The change during the year in an enterprise’s deferred tax liabilities and assets.
Two Main Objectives of Accounting for Income Taxes
1) Recognize the amount of taxes payable or refundable for the current year2) Recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprise’s financial statement or tax returns.
The income tax effects of extraordinary gains or losses ______.
Must be included in extraordinary items in an income statement
