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14 Cards in this Set
- Front
- Back
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Terms relating to Tax return
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Taxable income
Taxes Payable (current tax expense) Income tax paid Tax Loss carryforward |
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Terms relating to Financial statements
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Pretax income
Income tax expense Deferred income tax expense Deferred tax asset Deferred tax liability Valuation allowance timing difference temporary difference permanent difference |
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Example of Deferred tax: Current Liability
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Using different sales recognition methods on Tax returns and financial statements (ie. installment sales vs. sales method)
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Example of Deferred tax: Long term liability
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Using different depreciation methods on tax return and financial statements
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Example of Deferred tax: Shareholders Equity
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Gains/Losses of carrying marketable securities @ mkt. value
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Example of Deferred tax: Current Assets
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Warranty expenses accrued on financial statements but not deductable on tax returns
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Example of Deferred tax: Long term Assets
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Post retirement benefit expense on pretax income exceeds allowed deduction on tax return
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Deferred tax asset
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Taxes payable > income tax expense and are expected to be recovered from future operations
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Deferred tax liability
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Income tax expense > Taxes payable and are expected to result in future cash outflows
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Income tax expense
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=Taxes paybale + (change in DTL - change in DTA)
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If deferred tax liabilities are expected to reverse...
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Present value should be treated as liability and remainder should be treated as equity
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If deferred tax liabilities are NOT expected to reverse...
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Treat them as equity. This will usually be due to increasing expected capital expenditures
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If tax rate increases
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Deferred tax liability INCREASES the income tax expense, and the decrease in deferred tax assets DECREASES income tax expense. If DTL > DTA, net impact is INCREASE in tax expense and DECREASE in NI and owners equity.
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If tax rate decreases
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Deferred tax liability DECREASES the income tax expense, and the decrease in deferred tax assets INCREASES income tax expense. If DTL > DTA, net impact is DECREASE in tax expense and INCREASE in NI and owners equity.
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