Flashcards in Deferred Taxes Deck (32)
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? Pg. 19-1
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
They are not taxable and are not tax deductable
*Its always different with book and tax
What is deferred income tax expense?
The sum of Net Changes in Deferred Tax Assets and Deferred Tax LiabilitiesGAAP Method for calculating is theAsset and Liability ApproachNote: IFRS uses the Liability approach only
How are deferred tax assets classified as current or non-current on the balance sheet?
*What the significance with the B/S and I/S Pg. 19-14
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
*B/S: Net current and current
Net non-current and non-current
*I/S: Net all 4!!!
TEMPORARY DIFFERENCES => reported as asset or liability Pg. 19-3
What is the relationship between book expense < tax expense
What if book expense > tax expense
book income > taxable income; its a liability and considered a taxable temporary difference; LIABILITY
book income < taxable income; its an asset and considered a deductible temporary difference; ASSET
How do you find Tax Payable? Pg. 19-1 (Like M1)
*How do you determine what is added and substracted with permanent differences and temporary differences
Pretax Book Income (part of operating and non-operating)
+/- Permanent Difference (not taxable/deductible)
= Book Taxable INCOME
+/- Temporary Difference (Deferred Tax Liability = future tax rate x temporary difference); equity in earnings - dividends received (taxable and deductible); includes income that will be taxable at a later time
= Taxable INCOME
x Current Tax Rate
= Current Tax Liability (Current Tax Liability)
= Tax payable
*Whatever will be included in tax "+", and what will be exclude in tax "-"
*Note: Current and Deferred tax liability are part of the income statement
What should be disclosed regarding deferred taxes? ie) temporary differences, permanent differences, or the nature and amount of each type of operating loss and tax credit carry forward; Deferred Taxes#8
Temporary differences and the nature and amount of each type of operating loss and tax credit carry forward
Do not disclose permanent differences since they are not deductible or taxable
What is deferred income taxes? Pg. 19-1
What is this due to?
Results from the differences between the carrying values for book purposes and tax bases
This is due to temporary and timing differences
What is another term for temporary difference? Pg. 19-1
Reversal; permanent differences cannot be reversed
What will increase a temporary difference? Pg, 19-1
Assets will increase it, while liabilities will decrease it
What is the significance of dividends received deduction? Pg. 19-5
This portion will be considered permanent; the rest will be temporary / deffered taxed at the future rate
How do you determine what tax rate to use for deferred tax and for current tax liability?
I/S: current tax rate; this year only; dont include cumulative totals
B/S: future tax rate; include cumulative totals
What results in an increase in deferred tax liability?
FAR: 19 #9 & 45
Liability; add all liabilities
How do you find deferred income tax libility with equity in earning and dividends? FAR: 19 #48
Find difference of equity in earnings and dividends received; then multiple by left over DRD and tax rate
For interim income statement, which tax rate should you use? Deferred Tax #10
Expected tax rate because interim
What is the significance of a net operating loss? Pg. 19-7
It may be carried back 2 years and forward 20 years; if carried back it may be applied as a reduction of taxable income; if carried forward, the tax effects are recognized to the extent that the tax benefit is more likely than not to be realized
Which tax rate do you use to find deferred tax liability? Pg. 19-1
Use the future rate since deferred income taxes refer to the future tax expense
How do you depreciate 150% declining balance? Deferred tax #16
1.5 x straight line (1/useful life) x equip
What is the significance of deferred income taxes under IFRS? Pg. 19-10
ALL deferred tax assets and liabilities are non-current only
The percentage to completion method results in what type of deferred tax? Liability or Asset? Deferred tax #24
What is a deferred tax? Pg. 19-1
Results from differences between the carrying values for book purposes and the tax bases of assets and liabilities of a client (due to temporary and timing differences)
For deferred taxes, what should you think about with temporary differences?
What is included in the caculation of deferred taxes? Deferred taxes #28
Difference between book and tax; include income that will be taxable at a later date
Are deferred taxes considered current or non-current? Pg. 19-10
They are considered BOTH current and non-current for GAAP but ONLY non-current for IFRS
What is the liability approach? Pg. 19-1
Income tax expense: debit
Current tax liability: credit
Deferred tax liability: credit
How do you find the effective tax rate if it is not given?
Taxable liability (expense) / Pre-tax income
From the following what is considered a current deferred tax asset, and what is non-current; Deferred taxes #40
b) Warranty Liability
c) Deferred compensation liability
d) Installment receivables
*How do you determine if an item is current or non-current in regards to deferred tax?
a) Non-current => includes depreciation
b) 1st year current; following years non current
d) 1st year current; following years non current
*Look at the item (ie. if its equipment, its non current since it is long term)
When do you use the future rate for deferred taxes and when you you use the current rate? Deferred Tax #20, 28, 32
Use the future rate by multiplying by temporary differences to find the deferred tax liability => dont use the percentages in the caculation of the current tax liability
Use the current rate when calculating the current tax liability => dont use the future tax rate in the calculation