[Anonymous]

Hi everyone,

I am confused on the calculations of E&P, if anyone could help me out.

It seems like anything that was non-deductible for current taxable income is subtracted, and anything that was tax-exempt income is added back.

So isn’t E&P basically the book income (for financial GAAP)?

In the Becker text, it says NOL deductions, DRD used, Carryovers of capital losses and charitable contributions, are added back.

I am not understanding the logic behind adding back the deductions.

And then there is another section that mentions items that could be negative or positive adjustments to current E&P.

But how do you know which will have a negative or positive effect?

For example:

Excess depreciation for E&P over regular income tax. or Changes in cash surrender value of certain life insurance policies.

I think I am not understanding what E&P really is and how it relates to regular income tax.

Thanks for the help!

[NYCaccountant]

You add back NOL, DRD, carryover charitable contributions and capital loss because they only reduce taxable income. They do NOT reduce book income. They only have a tax effect.

Excess for book depreciation over tax depreciation would be be subtracted from taxable income. Because to get taxable income, you added back the disallowed depreciation.

changes in the cash surrender value of a life insurance would increase book Income, but must be subtracted out of taxable income because it's not taxable.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

You add back NOL, DRD, carryover charitable contributions and capital loss because they only reduce taxable income. They do NOT reduce book income. They only have a tax effect.

Excess for book depreciation over tax depreciation would be be subtracted from taxable income. Because to get taxable income, you added back the disallowed depreciation.

changes in the cash surrender value of a life insurance would increase book Income, but must be subtracted out of taxable income because it's not taxable.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Anonymous]

Hmm, I see.

So E&P is the same as book income?

So to determine between increase or decrease to E&P would be to compare the effects of regular taxable income to book income.

[Anonymous]

Hmm, I see.

So E&P is the same as book income?

So to determine between increase or decrease to E&P would be to compare the effects of regular taxable income to book income.

[Author]

Replies