Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
31 Cards in this Set
- Front
- Back
|
Taxable Income |
Income subject to tax based on the tax return |
|
|
Accounting Profit |
Pretax income from the I/S based on financial accounting standards |
|
|
Deferred Tax Assets |
Balance sheet asset value that results when taxes payable (tax return) are greater than income tax expense (income statement) and the difference is expected to reverse in future periods |
|
|
Deferred Tax Liabilities |
B/S liability value that results when income tax expense (I/S) is greater than taxes payable (tax return) and the difference is expected to reverse in future periods |
|
|
Valuation Allowance |
Reduction of deferred tax assets (contra account) based on the likelihood that future tax benefit will not be realized |
|
|
Taxes Payable |
Tax liability from the tax return; also refers to a liability that appears on the balance sheet for taxes due but not yet paid |
|
|
Income Tax Expense |
Expense recognized in the I/S that include taxes payable and changes in DTAs and DTLs |
|
|
Income Tax Expense Formula |
Income tax expense = taxes payable + change in DTL - change in DTA |
|
|
Taxes Payable Formula |
Taxes payable = current tax rate * taxable income |
|
|
Income Tax Expense Formula if not given taxes payable directly |
Income tax expense = current tax rate * taxable income + change in DTL - change in DTA |
|
|
What can cause a DTL? |
-Revenues/gains that are recognized in the income statement before they are included on the tax return due to temporary differences -Expenses/losses are tax deductible before they are recognized in the I/S |
|
|
What can cause a DTA? |
-Revenues/gains are taxable before they are recognized on the income statement -Expenses/losses are recognized in the I/S before they are tax deductible -Tax loss carryforwards are available to reduce future taxable income |
|
|
Typical causes of DTAs |
Post-employment benefits, warranty expenses and tax loss carryforwards |
|
|
Treatment of DTL that is not expected to reverse |
Should be treated as equity **Typically don't reverse because of expected continued growth in capex |
|
|
Tax Base |
Asset's value for tax purposes (cost - dep/amort for a fixed asset) *when an asset is sold, taxable gain or loss is equal to sale price minus asset's tax base |
|
|
Balance of DTA/DTL Formula |
Difference between tax base and carrying value *tax rate |
|
|
Effect on DTAs and DTLs when tax rate increases |
Both increase (and vice versa if tax rate decreases) |
|
|
Valuation Allowance |
Created when it's more likely than not that some/all of a DTA will not be realized *contra-asset *if circumstances change, DTA can be revalued upward by decreasing valuation allowance, which increases earnings |
|
|
If a change that leads to a deferred tax item is taken directly to equity, what should happen to deferred tax item? |
Also taken directly to equity |
|
|
Effective Tax Rate |
Income tax expense / pretax income |
|
|
Examples of permanent differences between taxes payable and income tax expense |
-Municipal bond interest -Officer's life insurance |
|
|
Valuation Allowance |
Contra-account that reduces the net balance sheet value of the DTA -according to GAAP, if it is more likely than not (greater than a 50% probability) that some or all of a DTA will not be realized, then it must be reduced by the valuation allowance -if circumstances change, DTA can be revalued upward by decreasing the valuation allowance |
|
|
What happens to a deferred tax item if the change that leads to that deferred tax item is taken directly to equity (such as upward revaluation)
|
Deferred tax item should also be taken directly to equity
|
|
|
Statutory Tax Rate |
Tax rate of the jurisdiction where the firm operates *may differ from reported income tax expense |
|
|
Differences between GAAP and IFRS w/ regards to revaluation of fixed assets and intangibles |
GAAP: N/A (no revaluation allowed) IFRS: deferred taxes are recognized in equity |
|
|
Differences between GAAP and IFRS w/ regards to undistributed profit from an investment in a subsidiary |
GAAP: No deferred taxes for foreign subsidiaries that meet the indefinite reversal criterion, no deferred taxes for domestic subsidiaries if the amounts are tax free IFRS: Deferred taxes are recognized unless parent is able to control the distribution of profit and it is probable the temporary difference will not reverse in the future |
|
|
Differences between GAAP and IFRS w/ regards to undistributed profit from an investment in a JV |
GAAP: No deferred taxes for foreign corporate JVs that meet indefinite reversal criterion IFRS: Deferred taxes are recognized unless the venturer is able to control the sharing of profit and it is probable the temporary difference will not reverse in the future |
|
|
Differences between GAAP and IFRS w/ regards to undistributed profit from an investment in an associate firm |
GAAP: Deferred taxes are recognized from temporary differences IFRS: Deferred taxes are recognized unless the investor is able to control the sharing of profit and it is probable the temporary difference will not reverse in the future |
|
|
Differences between GAAP and IFRS w/ regards to deferred tax asset recognition |
GAAP: recognized in full and then reduced if "more likely than not" that some or all of the tax asset will not be realized IFRS: recognized if "probably" that sufficient taxable profit will be available to recover tax asset |
|
|
Differences between GAAP and IFRS w/ regards to tax rate used to measure deferred taxes |
GAAP: Enacted tax rate only IFRS: Enacted or substantively enacted tax rate |
|
|
Differences between GAAP and IFRS w/ regards to presentation of deferred taxes on the balance sheet |
GAAP: Classified as current or non-current based on classification of the underlying asset or liability IFRS: Netted and classified as noncurrent |
