Deferred Taxes

Question 1

<p>What is a 'temporary difference' related to deferred taxes?</p>

Answer 1

<p>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</p>

Question 3

<p class=”large” style=”text-align:center”;>What is a deferred tax asset?</p>

Answer 3

<p class=”large” style=”text-align:center”;>Deduction will reduce future income taxes expense.</p>

Question 3

<p>What is a deferred tax liability?</p>

Answer 3

<p>Income will be taxable in a future period and will increase future tax expense</p>

Question 5

<p class=”large” style=”text-align:center”;>Which period’s tax rate is used to calculate a deferred tax asset or liability?</p>

Answer 5

<p class=”large” style=”text-align:center”;>The FUTURE enacted tax rate, not the current one.

It is never discounted to present value.</p>

Question 6

<p class=”large” style=”text-align:center”;>What valuation allowance is used with respect to a deferred tax asset?</p>

Answer 6

<p class=”large” style=”text-align:center”;>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</p>

Question 6

<p>What effect do 'permanent differences' have on deferred income taxes?</p>

Answer 6

<p>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</p>

Question 7

<p>What is deferred income tax expense?</p>

Answer 7

<p>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</p>

Question 8

<p>How are deferred tax assets classified as 'current' or 'non-current' on the balance sheet?</p>

Answer 8

<p>'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</p>