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INCOME TAXES
I.T
DTA
DTL
C/F
= Income Tax
= Deferred Tax Asset
= Deferred Tax Liabilities
= Carry Forwards
31. a
Amount of I.T expense may differ from actual taxes owed to taxing
authorities.
Taxable income income subject to tax based on tax return.
Taxes payables (current tax expense) tax liability on B.S caused by taxable
income.
Income tax paid actual CF for I.T including from prior periods payments or
refunds from received in the current period.
Tax loss carry forward current loss to reduce future taxable income (can
result in DTA).
Tax base amount at which the asset or liability is valued for tax purposes.
31. b
DTL is created when I.T expense is > than taxes payable due to temporary
differences.
DTL occurs when
Revenues in I.S before on tax return due to temporary differences.
Expenses are tax deductibles before recognizing in I.S.
DTA is created when taxes payable are > income tax exp due to temporary
differences.
Post-employment benefits, warranty expenses & tax loss C/F are causes of
DTA.
DTA occurs when
Revenues are taxable before recognizing in I.S.
Expenses are recognized in I.S before they are tax deductible.
Tax loss C/F is available to reduce future taxable income.
31. c
Tax base of assets amount that will be deducted on tax return in future as
eco benefit of asset are realized.
Carrying value value of asset reported on F.S, net of depreciation &
amortization.
Tax base of liabilities CV of liability any amount deductible on tax return
in future.
Tax base of revenue received in advance = CV amount of revenue that will
not be taxed in future.
VA
A&L
NI
FS
= Valuation Allowance
= Assets & Liabilities
= Net Income
= Financial Statement
31.d
Example
31. e
When tax rate , DTL & DTA & vice versa.
in B.S values will affect I.T. expenses in current period.
I.T expense = taxes payable + DTL - DTA.
31. f
Permanent difference difference b/w taxable income & pretax income
that will not reverse in future.
Permanent differences do not create DTA or DTL & will cause firms effective
tax rate to differ from statutory tax rate.
Statutory rate tax rate of jurisdiction.
Effective tax rate = income tax expense / pretax income.
Temporary difference diff. b/w tax base & CV of A or L that will result in
taxable or deductible amounts in future.
31. g
Neither DTA nor DTL are carried on B.S at discounted PV.
If > 50% probability that some or all DTA will not realized, then DTA must be
reduced by valuation allowance (reduce net B/S value of DTA) I.T expense
& N.I & vice versa. (U.S.GAAP).
Management can manipulate earnings by changing valuation allowance.
31. h
Disclosure is required for DTA & DTL.
in these accounts are reflected in I.T expense.
Some examples of temporary differences may include depreciation methods.
31. i
Disclosure is about:
DTA, DTL & VA, net in VA.
Any unrecognized DTL for undistributed earnings of subsidiaries & joint
ventures.
Current year tax effect of each difference.
Components of I.T expenses & tax loss C/F & credits.
Reconciliation of reported I.T provision and the I.T provision computed
using the statutory tax rate.
31. j
IFRS