Accounting for Income Tax - 10146 Words

CHAPTER Accounting for Income Taxes OBJECTIVES After careful study of this chapter, you will be able to: 1. 2. 3. 4. 5. 6. 7. 8. 9. Understand permanent and temporary differences. Explain the conceptual issues regarding interperiod tax allocation. Record and report deferred tax liabilities. Record and report deferred tax assets. Explain an operating loss carryback and carryforward. Account for an operating loss carryback. Account for an operating loss carryforward. Apply intraperiod tax allocation. Classify deferred tax liabilities and assets. 19-1 SYNOPSIS Overview and Definitions 1. Significant differences normally exist between a company s pretax financial income and taxable income because generally accepted accounting†¦show more content†¦A corporation s pretax financial income may be less than its taxable income if the income tax laws require that revenue received in advance of being earned must be included in taxable income when received or if the tax laws disallow the deduction of accrued expense until actually paid. The following will result in temporary differences that generate a deferred tax asset (future deductible amounts) because a corporation s taxable income is greater than pretax financial income in the year in which the temporary difference originates. As a result, future taxable income will be less than future pretax financial income when the item reverses in future years. Method Used for Book Purposes Prepaid rent, interest, royalties, or other revenue received in advance included in income when earned Gains on sales and leasebacks are reported over the life of the lease contract Warranty expense, bad debt expense, compensation expense for stock option plans, and losses on inventories in a laterShow MoreRelatedDefend the Asset/Liability Approach of Accounting for Inter-Period Income Tax Allocation.642 Words   |  3 PagesTeam 2: Defend the asset/liability approach of accounting for inter-period income tax allocation. The asset/liability method of income tax allocation is balance sheet oriented. The intent is to accrue and report the total tax benefit or taxes payable that will actually be realized or assessed on temporary differences when their respective future taxable or deductible amounts are expected to occur. The book states 5 arguments: 1. The balance sheet is becoming more important financial statementRead MoreCompany Reporting1285 Words   |  6 Pages2 2.1 Exploration and Development costs creates a Deferred Tax Liability 2 2.2 Analysis on arguments by directors 3 2.2.1 No Income Tax Expenses 3 2.2.2 No deferred tax liability 4 2.2.3 Tax losses 5 2.3 Information utility to users of financial report of deferred tax liabilities 6 3.0 Conclusion 7 References 8 1.0 Introduction Accounting Standard AASB 112 (Income Taxes) prescribe the accounting treatment for income taxes. As stated by Leo, Hoggett, amp; Sweeting (2012), transactionsRead MoreA Brief Look Into American Tax Structure1282 Words   |  6 Pages A Brief Look Into American Tax Structure GAAP vs. IRS Tax Accounting CJ Moore Highline CC January 19, 2014 Prior to the ratification of the Sixteenth Amendment of the American Constitution, the majority of the income received by the federal government was through tariffs and excise taxation (Pollack, 2013). Tariffs are taxes â€Å"levied by governments on the value including freight and insurance of imported products (Tariffs and Import Fees, 2014)†. Excise taxes are â€Å"taxes paid when purchasesRead MoreIntermediate Accounting 9th Canadian Edition - Chapt1385 Words   |  6 Pagesa future income tax asset. ii. Reversing Entry that results in future taxable amounts and, therefore will usually give rise to a future income tax liability. iii. A permanent Difference b) Indicate if the amounts that are involved in the current year will be added to or deducted from accounting income to arrive at taxable income. 1. Financial reporting purposes: straight line depreciation method is used for plant assets that have a useful life of 10 years; for Tax Purposes:Read MoreKey Principles Of Tax Effect Accounting Essay950 Words   |  4 Pagesthe Income Tax requirements as per AASB 112. â€Æ' Main principles of tax-effect accounting The Institute of Chartered Accountants in Australia issued D4 (‘Treatment of Taxations in Accounts’) in 1964. It was the first official Australian statement on accounting for income tax. In the year 2005, Australian Accounting Standards for Income Tax which is AASB 112 became effective to a program of merging with the International Accounting Standards. AASB 112 switched from the liability method of tax-effectRead MoreGenerally Accepted Accounting Principles and Tax Basis1108 Words   |  5 PagesAmeen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2012, the carrying value of the building was $30 million and its tax basis was $20 million. At December 31, 2013, the carrying value of the building was $28 million and its tax basis was $13 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2013 was $45 million.On January 1, 2010, Ameen Company pu rchased a building forRead MoreCompany Reporting1448 Words   |  6 Pages1. Introduction Accounting treatment for income taxes for for-profit entities is subject to Australian Accounting Standard Board (AASB) 112 Income Taxes. In accounting for income tax, complying with tax-effect method involves the occurrence of tax consequences due to different treatments are applied for transactions and other events happened inside an entity for accounting and taxation purposes, namely current tax consequences and future tax consequences. The purpose of this report was toRead MoreTemporary Differences1346 Words   |  6 PagesDifferences SFAS No. 109, â€Å"Accounting for Income Taxes,† requires inter-period tax allocation for temporary differences. Required: a. Define the term temporary difference. b. List the examples of temporary differences contained in SFAS No. 109. c. Defend inter-period income tax allocation. a. Temporary Difference – Definition An assumption inherent in an enterprise s statement of financial position prepared in accordance with generally accepted accounting principles is that theRead MoreFinancial Reporting Disclosures Of The Australian Corporate Sector975 Words   |  4 Pagesthe Income Tax requirements as per AASB 112. â€Æ' Main principles of tax-effect accounting The Institute of Chartered Accountants in Australia issued D4 (‘Treatment of Taxations in Accounts’) in 1964. It was the first official Australian statement on accounting for income tax. In the year 2005, Australian Accounting Standards for Income Tax which is AASB 112 became effective to a program of merging with the International Accounting Standards. AASB 112 switched from the liability method of tax-effectRead MoreAccounting Principles Of A Consolidated Financial Position Or Results Of Operations1132 Words   |  5 Pagesclaims, cost of sales, equity method investments and income taxes. We use the following methods to determine our estimates: The remainder of this chapter addresses specific events and conditions that, although infrequent, affect earnings quality, especially as it relates to earnings persistence. The topics discussed are as follows: †¢ Discontinued operations †¢ Extraordinary gains and losses Changes in accounting principles †¢ Other comprehensive income items †¢ Impairment losses on long-lived assets †¢