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Flashcards in Deferred Taxes Deck (27)
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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 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


Objective of accounting for income taxes

To recognize amount of current and deferred taxes payable or refundable


Calculate income tax expense

Amount currently payable + tax effect of temporary differences


Treatment of permanent differences in deferred tax liability

Exclude permanent differences from deferred tax liability


What rate to use for deferred tax liability

Use current tax rate or enacted future tax rate if different


What is the deferred income tax expense or benefit

Net change during the year in an enterprises deferred tax liabilities or assets


Journal entry for increase in deferred tax asset and income tax payable

DR Income tax expense - current
CR Income tax payable

DR Deferred tax asset
CR Income tax expense - Deferred


Journal entry for deferred tax asset valuation allowance

DR Income tax expense - deferred
CR Allowance to reduce DTA expense - deferred


Calculate dividend received deduction permanent difference

DRD x (Accounting dividend revenue - tax dividend revenue)


Calculate dividend received deduction temporary difference

(1-DRD) x (Accounting dividend revenue - tax dividend revenue)


Journal entry for loss carry back

DR Tax refund receivable
CR Benefit due to loss carryback


Journal entry for loss carryforward

CR benefit due to loss carryforward


Where is loss carryforward or loss carryback shown on income statement?

After loss before income taxes


What does loss carryforward or loss carryback reduce

Reduces current income tax expense


When is a valuation allowance required

Inconsistent company performance and lack of positive evidence since a DTA may not be used


Classification of deferred tax liability from depreciation

Noncurrent liability


Two classifications of deferred tax assets and liabilities and when to use each classification

Current and noncurrent

Based on related asset or liability
If not related to an asset or liability then based on timing of reversal or date of utilization


How is a receivable for taxes paid refundable through a carryback treated

Not a deferred tax asset and does not offset a deferred tax liability


How is income tax expense allocated on the income statement

Allocated between continuing operations, extraordinary items, etc

Computed by determining income tax on overall income and comparing to tax on continuing operations. If more than 1 special items exists, proportionally allocate tax in special items


Where is the tax benefit of an operating loss carryforward or carryback reported

Reported in same manner as source of income (loss) in current year