Deferred Taxes Flashcards
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
What is a deferred tax asset?
Deduction will reduce future income taxes expense.
What is a deferred tax liability?
Income will be taxable in a future period and will increase future tax expense
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.
What valuation allowance is used with respect to a deferred tax asset?
If it isprobable 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
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
What is deferred income tax expense?
The sum of Net Changes in Deferred Tax Assets and Deferred Tax Liabilities
GAAP Method for calculating is theAsset and Liability Approach
Note: IFRS uses the Liability approach only
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 fromt he Balance Sheet Date. All non-current amounts are netted and reported as a single amount on the Balance Sheet
How do you calculate current tax liability?
Income tax exp or Ben + def. income tax exp or Ben. = current tax liability
What are some common permanent difference?
Tax exempt interest, fines & penalties, life insurance premiums on key EE, dividend received deduction
Examples of DTL
Revenue recognized earlier for books than for tax (a/r, unrealized gain in trading securities)
Expenses recognized later for books than for tax (prepaid exp, depreciation)
Examples of DTA
Rev recognized later for books than for tax (unearned revenue)
Expenses recognized earlier for books than deductible for tax (accrued expenses - bad debt, warranties, prepaid tax benefit.
How are DTL or DTA derived?
Income tax expense is derived from book income, income tax payable is derived from taxable income, the difference is a DTA or DTL
