1. Fundamentals of Accounting for Income Taxes
1.1. The amount that a company reports as tax expense will differ from the amount of taxes payable to the tax authority (see illustration 19.1)
1.1.1. Pretax financial income
1.1.2. Taxable income
1.2. Deferred tax
1.2.1. difference between income tax expense and income taxes payable reflects taxes that company will pay in future periods
1.2.1.1. Deffered tax Liability (giả định temp diff gây ra bởi chỉ assets hoặc lia có cùng tính chất => nếu trong bài có cả khác biệt về lia và ass thì xét riêng 2 loại rồi tổng hợp lại ảnh hưởng sau)
1.2.1.1.1. Accounting base>Tax base (xét theo giá trị (tính cả dấu âm của nghĩa vụ nợ) at the end of the current year: Chỉ xác định vào năm đầu tiên
1.2.1.1.2. consequences attributable to taxable temporary differences
1.2.1.1.3. Income tax expense has two components—current tax expense and deferred tax expense.
1.2.1.2. Deferred tax assets (giả định temp diff gây ra bởi chỉ assets hoặc lia có cùng tính chất => nếu trong bài có cả khác biệt về lia và ass thì xét riêng 2 loại rồi tổng hợp lại ảnh hưởng sau)
1.2.1.2.1. Results from deductible amount
1.2.1.2.2. Accounting base<Tax base (lấy theo giá trị) at the end of the current year: chỉ xác định vào năm đầu tiên
1.2.1.2.3. Total income tax expense consists of two elements—current tax expense and deferred tax expense
1.2.1.2.4. Non-recognition
1.3. Future taxable amount
1.3.1. happen when there are temporary differences between the amounts reported for tax purposes and those reported for book purposes
1.3.1.1. Taxable amount
1.3.1.2. Deductible amount
2. Additional issues
2.1. Income statement presentation
2.1.1. a company should disclose the significant components of income tax expense attributable to continuing operations
2.1.1.1. Another option is to simply report the total income tax expense then indicate in the notes to the financial statements the current and deferred portions
2.1.1.2. reports both the current portion and the deferred portion of income tax expense
2.2. Specific differences
2.2.1. Temporary
2.2.1.1. Taxable temporary differences
2.2.1.1.1. Examples (ill 19.29)
2.2.1.2. Deductible temporary differences
2.2.1.2.1. Examples (ill 19.29)
2.2.1.3. companies recognize deferred tax consequences for permanent differences
2.2.1.4. Originating and Reversing Aspects of Temporary Differences
2.2.1.4.1. originating temporary difference
2.2.1.4.2. reversing difference
2.2.2. Permanent
2.2.2.1. Causes
2.2.2.1.1. items that enter into pretax financial income but never into taxable income
2.2.2.1.2. items that enter into taxable income but never into pretax financial income
2.2.2.2. companies recognize no deferred tax consequences for permanent differences
2.3. Tax rate considerations
2.3.1. Future tax rate
2.3.1.1. a company should use the substantially enacted tax rate expected to apply
2.3.1.2. If new rates are not yet enacted for future years, company should use the current rate.
2.3.1.3. In some countries, the applicable tax rate depends on how the carrying amount of an asset or liability is recovered or settled
2.3.2. Revision of Future Tax Rates (ill 19.35)
2.3.2.1. When a change in the tax rate is enacted, companies should record its effect on the existing deferred income tax accounts immediately
2.3.2.2. A company reports the effect as an adjustment to income tax expense in the period of the change
3. Accounting for Net Operating Losses
3.1. Definition
3.1.1. expenses to exceed revenues—a net operating loss.
3.2. occurs for tax purposes in a year when tax-deductible expenses exceed taxable revenues
3.3. Under certain circumstances, therefore, tax laws permit taxpayers to use the losses of one year to offset the profits of other years
3.3.1. Loss carryback
3.3.1.1. carry the net operating loss back two years and receive refunds for income taxes paid in those years. The company must apply the loss to the earlier year first and then to the second year. It may carry forward any loss remaining after the two-year carryback up to 20 years to offset future taxable income
3.3.1.1.1. Dr Income tax refund receivable (FP) Cr Benefit due to loss carryback (on PL) (ill 19.39)
3.3.2. Loss carryforward
3.3.2.1. offsetting future taxable income for up to 20 years
3.3.2.1.1. tax effect of a loss carryforward represents future tax savings
3.3.2.1.2. There should not be different requirements for recognition of a deferred tax asset and operating loss carryforward
3.3.2.1.3. Non-recognition
3.3.2.1.4. Non-recognition revisited
3.3.3. a company pays no income taxes for a year in which it incurs a net operating loss
4. Financial statement presentation
4.1. SOFP
4.1.1. classify Income taxes receivable or payable as current assets or current liabilities
4.1.1.1. current tax assets and liabilities often offset in the statement of financial position
4.1.2. Deferred tax assets and deferred tax liabilities may be offset in the statement of financial position
4.1.2.1. net deferred tax asset or net deferred tax liability is reported in the non-current section
4.2. PL
4.2.1. Companies allocate income tax expense (or benefit) to continuing operations, discontinued operations, other comprehensive income, and prior period adjustments.
4.2.2. 5 components of income tax expense (benefit)
4.3. Tax reconciliation
4.4. Review of the asset-liability method
4.4.1. 2 objectives
4.4.1.1. recognize the amount of taxes payable or refundable for the current year
4.4.1.2. recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns
4.4.2. 4 basic principles