cpahopeful206,
I am studying Income tax accounting right now. the explanation in my CPA material didn't help me much and I am working on the MCQ right now.
Here are some of my notes. I hope they help:
Deferred Tax Liability represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year.
Deferred Tax Asset represents the increase in taxes refundable (or saved) in future years as a result of deductible temporary differences existing at the end of the current year.
Deferred Tax Asset—Valuation Allowance :
A company should reduce a deferred tax asset by a valuation allowance if it is more likely than not that it will not realize some portion or all of the deferred tax asset.
“More likely than not” means a level of likelihood of at least slightly more than 50 percent.
Permanent differences are caused by items that (1) enter into pretax financial income but never into taxable income or (2) enter into taxable income but never into pretax financial income.
When a change in the tax rate is enacted, companies should record its effect on the existing deferred income tax accounts immediately.
The classification of deferred taxes under IFRS is always non-current.
Operating losses:
carrybacks: 2 years,
-100% collectible and no valuation allowance
-a claim for refund should be classified in the B/S as a separate item from deferred taxes
Dr Cr
Tax refund receivable
Tax benefit xxx
xxx
Tax benefit account is a reduction of the book loss (a contra expense)
Carryforwards: 20 years
-Valuation allowance may be necessary (required)
Dr Cr
Deferred tax asset
Tax benefit xxx
xxx
DTA is a reduction of the book loss (a contra-expense
Balance sheet presentation:
Deferred tax items should be classified based on the classification of the related asset or liability for financial reporting
Deferred tax items not related to an asset or liability should be classified based on the expected reversal date of the temporary difference.
All deferred tax asset and liabilities classified as current must be netted
All deferred tax asset and liabilities classified as non-current must be netted
FAR: 88
REG: 81
BEC: TBD
AUD: 11/30/13
"Efficiency is doing things right. Effectiveness is doing the right things" Peter Drucker
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