Reading 38 Income Taxes

Front 1

Accounting Profit

Back 1

Reported on the income statement, AKA income before taxes or pretax income, Does not include provision for income tax expense.

Front 2

Taxable Income

Back 2

portion of the company's income that is subject to income tax expense under the tax laws of its jurisdiction

Front 3

Income Tax Payable or recoverable

Back 3

a liabiility or asset which is calculated on the basis of the company's tax rate and appears on the balance sheet

Front 4

Tax Expense or Benefit

Back 4

appears of the income statement and is an aggregate of its income tax payable or recoverable and any changes in deferred tax assets and liabilities

Front 5

Deferred Tax Assets

Back 5

appear on the balance sheet, arise when an excess amount is paid for income taxes (taxable income higher than accounting proft) and the company expects to recover the difference during the course of future operations

Front 6

Valuation Allowance

Back 6

a reserve created against deferred tax assets. The valuation allowance is based on the likelihood of realizing the deferred tax assets in future accounting periods

Front 7

Deferred Tax Liabilites

Back 7

appear on the balance sheet, arise when a deficit amount is paid for income taxes and the company expects to eliminate the deficit over the course of future operations (financial accounting income tax expense exceeds income taxes payable)

Front 8

Income Tax Paid

Back 8

actual amount paid for income taxes (actual cash outflow)

Front 9

Tax Base

Back 9

amount at which the asset or liability is valued for tax purposes

Front 10

Carrying Amount

Back 10

amount at which the asset or liability is valued according to accounting principles

Front 11

What are permanent tax differences?

Back 11

They are differences between tax and financial reporting of revenue (expenses) that will not be reversed at some future date, therefore they do not give rise to deferred tax items.

Front 12

What are the two types of temporary tax differences?

Back 12

Taxable temporary differences and deductible temporary differences.

Front 13

What is a taxable temporary difference?

Back 13

temporary differences that result in a taxable amount in a future period. Taxable temporary differences result in an deferred tax liability when carrying amount of asset exceeds its tax base and with a liability when the tax base of the liability exceeds it tax base

Front 14

What is a deductible temporary difference?

Back 14

temporary differences that result in reduction or deduction of taxable income in a future period when the balance sheet item is recovered or settled. Results in a deferred tax asset when tax base exceeds its carrying amount and with a liablility when the carrying amount of the liability exceeds its tax base