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Flashcards in Deferred Taxes Deck (12):
1

Municipal Obligations

Permanent difference

2

Objective of accounting for income taxes - ASC Topic 740

To recognize current taxes payable or refundable and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in an enterprise’s financial statements or tax returns

3

IFRS

permits netting of deferred taxes if they relate to the same taxing authority and only permits deferred taxes to be classified as noncurrent.

4

Items included in Total Income Tax Expense

Income tax expense - current
Income tax expense - deferred

5

Future taxable income will be greater (deferred tax liability)

A timing difference where, in the future, taxable income will be greater than financial (book) income is reported as a deferred tax liability. The amount to be recorded as the deferred tax liability is the temporary difference multiplied by the substantially enacted tax rate
Taxable income is lower in the CY than Book it will reverse itself in the future: future taxable amount = deferred tax liability

6

Future taxable income will be lower (deferred tax asset)

Taxable income is higher in the CY than book income, this will reverse in the future to taxable income being lower than book
Future deductible amount x future rate = deferred tax asset.

7

Deferred Tax Disclosures

The types and amounts of existing temporary differences, and the nature and amount of each type of operating loss and tax credit carryforward must be disclosed in the notes to the financial statements. Permanent differences do not need to be disclosed.

8

Total tax expense

The current portion of tax expense plus the deferred portion of tax expense

9

Permanent difference

Do not affect deferred taxes:
premiums on officers’ life insurance
municipal interest revenue

10

Estimated future warranty cost

Is a temporary difference which results in future deductible amounts.

11

If a temporary difference results in future taxable amounts

A deferred tax liability must be recorded in the current year because a past event has resulted in a present obligation which will require a probable future sacrifice (payment of taxes).

12

Permanent differences

items that either enter into pretax accounting income but never into taxable income (such as interest on muni bonds and related penalties) or enter into taxable income but never into pretax accounting income.