What is a temporary difference related to deferred taxes?
GAAP says to recognize a revenue/expense in one period and tax laws say to recognize it in another.
Example: Dividends from a subsidiary accounted for using the Equity Method - tax income but not book income.
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What is a deferred tax asset?
A deduction that will reduce future income tax expense.
What is a deferred tax liability?
Income that will be taxable in a future period and will increase future tax expense.
Which period’s tax rate is used to calculate a deferred tax asset or liability?
The future enacted tax rate is used to calculate a deferred tax asset or liability, not the current one.
It is never discounted to present value.
What valuation allowance is used with respect to a deferred tax asset?
If it is probable that not all of a Deferred Tax Asset (debit) will be realized, then the Deferred Tax Asset account must be written down (credit) to reflect this.
What effect do permanent differences have on deferred income taxes?
They have no tax impact.
When calculating the total differences between book and tax income, subtract the permanent differences from the total before applying a future enacted tax rate.
What is deferred income tax expense?
Deferred income tax expense refers to the sum of Net Changes in Deferred Tax Assets and Deferred Tax Liabilities.
GAAP Method for calculating is the Asset and Liability Approach.
Note: IFRS uses the Liability approach only.
How are deferred tax assets classified on the balance sheet?
Deferred Tax Assets and Liabilities are classified as non-current on the balance sheet
