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Flashcards in Deferred Taxes Deck (8):
2

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

3

What is a deferred tax asset?

Deduction will reduce future income taxes expense.

4

What is a deferred tax liability?

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

5

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.

6

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

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

7

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

8

What is deferred income tax expense?

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

10

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 from the Balance Sheet Date. All non-current amounts are netted and reported as a single amount on the Balance Sheet