Deferred Taxes Flashcards
Deferred Taxes
What is a ‘temporary difference’ related to deferred taxes?
GAAP says to recognize a revenue/expense in one period and tax laws say to recognize it in another
Example: Dividends from a subsidiary accounted for using the Equity Method; tax income, but not book income
Deferred Taxes
What is a deferred tax asset?
Deduction will reduce future income taxes expense.
Deferred Taxes
What is a deferred tax liability?
Income will be taxable in a future period and will increase future tax expense
Deferred Taxes
Which period’s tax rate is used to calculate a deferred tax asset or liability?
The FUTURE enacted tax rate, not the current one.
It is never discounted to present value.
Deferred Taxes
What valuation allowance is used with respect to a deferred tax asset?
If it is “probable” that not all of a Deferred Tax Asset (debit) will be realized, then the Deferred Tax Asset account must be written down (credit) to reflect this
Deferred Taxes
What effect do ‘permanent differences’ have on deferred income taxes?
They have no tax impact.
When calculating the total differences between book and tax income- subtract the permanent differences from the total before applying a future enacted tax rate
Deferred Taxes
What is deferred income tax expense?
The sum of Net Changes in Deferred Tax Assets and Deferred Tax Liabilities
GAAP Method for calculating is the ‘Asset and Liability Approach’
Note: IFRS uses the ‘Liability approach’ only
Deferred Taxes
How are deferred tax assets classified as ‘current’ or ‘non-current’ on the balance sheet?
‘Current’ Deferred Tax Assets and Liabilities will impact income tax expense within 12 months. All current amounts are netted and reported as a single amount on the Balance Sheet
‘Non-Current’ Deferred Tax Assets and Liabilities will impact income tax expense 12 months or more from the Balance Sheet Date. All non-current amounts are netted and reported as a single amount on the Balance Sheet
