Flashcards in F6: Income Taxes Deck (20):
Accounting for income taxes involves what two tax allocations?
Intraperiod Tax Allocation
apportions the total tax provision for financial accounting purposes between the income or loss from IDEA PUFER
Objective of interperiod tax allocation
To recognize through the matching principle the amount of current and future tax related to events that have been recognized
Two types of differences between pretax GAAP and taxable income
1- Temporary Differences
2- Permanent Differences
Permanent Differences affect what?
Current, not deferred
Temporary Differences affect what?
Both Current and Deferred
What approach is required by GAAP for comprehensive allocation?
The Balance Sheet Approach (aka the asset and liability method)
Balance Sheet Approach
-Items that are recognized first for tax purposes will eventually be recognized for GAAP (and vice versa)
-These items are therefore temporary and require an asset or a liability on the books until the difference turns around completely
Formula for interperiod tax allocation
Current income tax payable (B/S)
+- change in deferred income tax balance (B/S)
= Total income tax expense or benefit (I/S)
Do permanent differences need an interperiod tax allocation?
No- no deferred taxes are needed
Do temporary differences need an interperiod tax allocation?
Yes- deferred taxes are required
Deferred Tax Liability happens when:
Future tax accounting income > future financial accounting income
Deferred Tax Asset happens when:
(think gift card)
Future tax accounting income < future financial accounting income
If it is more likely than not (more than 50%) that part or all of the deferred tax asset will not be realized, what happens?
A valuation allowance account in recognized
Valuation Allowances: GAAP vs IFRS
GAAP- allows them
IFRS- does note
When is the enacted tax rate used?
Used for deferred taxes for temporary differences only
Use the tax rate in effect when the temporary difference:
Changes in tax laws or rates are recognized when?
In the period of change
An adjustment from a change in tax laws goes where?
Income from continuing operations