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Flashcards in Deferred Taxes Deck (11):

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

TI > BI in future period


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 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


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


What amount do you report for an uncertain tax position?

A benefit is recognized if there is a cumulative benefit of at least 50% that the position will be upheld.

If there is less than a 50% probability, you can take the deduction without reporting a benefit. The payable is smaller, but you report the difference as a second liability and income tax expense isn't decreased.


What is the current income tax provision?

Same thing as the current liability - the amount that will be paid in the current year


Hut Co. has temporary taxable differences that will reverse during the next year and add to taxable income. These differences relate to non-current assets. Deferred income taxes based on these temporary differences should be classified in Hut's balance sheet as a...

Classification of deferred tax accounts is based on the item giving rise to the temporary differences. In this case, the underlying item is non-current liability.