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 SheetNon-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
if a deferred tax asset is deemed more likely than not, NOT to be recognized then you should
increase financial statement tax expense
if a deferred tax asset will reverse; however the company anticipates no taxable income for the forseeable future, then
increase financial statement tax expense
income projections are more positive than previous estimates and the valuation allowance associated with a deferred tax asset is adjusted
decrease valuation allowance
for plant assets, the depreciation expense deducted for tax purposes is in excess of the depreciation expense used for financial reporting purposes
temporary timing difference, liability, noncurrent
a landlord collects rents in advance
temporary timing difference, asset, curretn
interest is received on an investment in tax-exempt municipal obligations
permanent difference, no financial statement presentation
costs of one-year warranties are estimated and accrued for financial reporting purposes
temporary timing difference, asset, current
