Flashcards in Deferred Tax Deck (20):
Income effects of DT for GAAP AND IFRS
GAAP income stmt
Tax rate for GAAP AND IFRS
IFRS - enacted or substantially enacted
DTA valuation in GAAP AND IFRS
GAAP- DTA can use a contra account if 25% can't be recognized, and then record the whole amount = impairment approach
IFRS - DTA only record the can be realized amount = affirmative judgement
NOL CB and CF
Step 1. Record the ITE and DTA as related ITBenefit -LCF and LCB
Step 2. If can't recognize the whole DTA amount, then Cr. Allowance account allowance for reduce DTA to expected realizable value, Dr. LCF
If used it then need to reverse the entry
Step 3. Record the normal ITE and the DTA and ITP amount
Step 4. If the LCF expired, then DTA need to reduce by the valuation account amount.
Nondeductible amount treatment in pretax income and the record of DTL or DTA
Step 1. Add back the Nondeductible amount because it was deducted from pretax income already, eliminate the tax exempt revenue
Step 2. Find the difference of pretax and taxable amount
Step 3. Find taxes, if enacted rates are different, if rate change at year 2, then year two rate difference will times the first year difference amount to record the additional, ITE amount
Basic principle for DTA/ DTL?
Current tax liabilities or asset recognized for estimated taxes payable or refundable on tax returns for the current year
Does GAAP provide guidance for related uncertainty in income taxes?
Yes, GAAP provide guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transaction related to uncertain tax positions.
Current and no current DTA and DTL classification
DTA and DTL are reported in a net current and a net non-current amount.
How to report the tax rate for interim period?
Use the effective income tax rate for the current year.
Taxable Revenue Later [TRL]= Deferred Tax Liabilities
Deductible Expense Now [DEN] = Deferred Tax Liabilities
TRL a DEN @Liabilities
Deductible Expense Later [DEL] = DTA
Taxable Revenue Now [TRN] = DTA
DEL is TRN
TRL a DEN items
Revenue items recognized under book, but deferred for tax
All no cash items like depreciation, depletion, amortization
DEL is TRN items
Expenses recognized in book, but not count in taxable income until cash go out
Revenue received now, taxed now, but not recognized by book until criteria satisfied
Deferred taxes assets and liabilities treatment in GAAP and IFRS
DTA and DTL GAAP current and non-current
IFRS all non-current
Deferred tax expense or benefit is equal to?
The sum of net changes of DTA/L
Logic way to think through deferred tax asset and liability sceneries: increase in prepaid insurance
Increase in rent receivable
Increase in warranty obligations
1: prepaid insurance xx
Based on the JE, you can see that for taxable income, the insurance expense is already deducted from net income, but book income will only deduct the current year portion taxable income, so result in DTL
2. Increase in rent receivable: rent revenue is already included in book income, but not received for tax income purpose, so book income > taxable income, result in DTL
3. Increase in warranty obligation: warranty expense is accrued and deducted from book income, but not paid for tax income purpose until paid, so book income is
For uncertain tax provision, what is the recognized tax benefit from uncertain tax provision that should be recorded in current year?
Only the net increase amount. If there was a tax benefit recognized for 20k, and current year, this amount become 22k, the net increase is 2k.
If uncertain tax provision can recognized tax benefit 20% at 40k, and 40% at 25k, what should be the current tax benefit?
20% chance that 40k can be recognized, the 40k including the 25k. But 20% is remote,
40% chance of 25k can be recognized, the total chance become 60%, so the final number is 25k
NOL carry back and carry forward years?
Back 2 years and forward 20 years
If tax rate is going to increase, is carry back or forward is more beneficial?