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Flashcards in Deferred Tax Deck (20):

Income effects of DT for GAAP AND IFRS

GAAP income stmt
IFRS equity


Tax rate for GAAP AND IFRS

GAAP- enacted
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



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



TRL a DEN items

TRL items
Revenue items recognized under book, but deferred for tax

DEN items

All no cash items like depreciation, depletion, amortization


DEL is TRN items

DEL items
Expenses recognized in book, but not count in taxable income until cash go out

TRN items

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
Cash. 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?

Carry forward.


If year 3 loss carry back to year1, which has a loss, and year 2 have a gain in net operating income, how is the carry back being treated?

Can only carry back to offset the operating income, loss is ignored. So in this case, only carry back to year 2 and the remaining carry forward.