Deferred Taxes

Question 2

What is a temporary difference related to deferred taxes?

Answer 2

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

Question 3

What is a deferred tax asset?

Answer 3

Deduction will reduce future income taxes expense.

Question 4

What is a deferred tax liability?

Answer 4

Income will be taxable in a future period and will increase future tax expense

Question 5

Which period’s tax rate is used to calculate a deferred tax asset or liability?

Answer 5

The FUTURE enacted tax rate not the current one.

It is never discounted to present value.

Question 6

What valuation allowance is used with respect to a deferred tax asset?

Answer 6

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

Question 7

What effect do permanent differences have on deferred income taxes?

Answer 7

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

Question 8

What is deferred income tax expense?

Answer 8

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

Question 9

How are deferred tax assets classified as current or non-current on the balance sheet?

Answer 9

“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

Question 10

What is a temporary difference?

Answer 10

When GAAP says to recognize rev/exp in on period and the tax law says to recognize in another

Question 11

When and where do current deferred tax assets/liabilities impact?

Answer 11

Impact income tax expense within 12 mo

All current amts are netted and reported as a single amount on BS

Question 12

When and where do current deferred tax assets and liabilities impact?

Answer 12

Impact income tax expense in more than 12 mo

All NC amts are netted and reported as a single amt on BS