ifsa_chapter13

8/16/2019 ifsa_chapter13

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CHAPTER 13INCOME TAXES

Presenter’s name

Presenter’s title

dd Month yyyy


2/27

ACCOUNTIN PRO!ITS AN" TAXA#$E INCOME

Co%yri&ht ' ()13 C!A Instit*te (

Accounting Profit:

Amo*nt re%orted in

a++ordan+e ,ith a++o*ntin&

standards -also .no,n as

%reta/ in+ome0

Taxable Income:

Portion o2 in+ome s*4e+t to

in+ome ta/es *nder

4*risdi+tion

#e+a*se o2 di22erent &*idelines 2or ho, in+ome is re%orted on 2inan+ial

statements and ho, it is meas*red 2or in+ome ta/ %*r%oses5

a++o*ntin& %ro2its and ta/ale in+ome may di22er


3/27


6 7hen ta/ale in+ome is &reater than a++o*ntin& %ro2it8

9 A+t*al in+ome ta/es %ayale ,ill e/+eed the 2inan+ial a++o*ntin&

in+ome ta/ e/%ense

9 "e2erred ta/ assets arise

6 7hen a++o*ntin& %ro2it is &reater than ta/ale in+ome89 !inan+ial a++o*ntin& in+ome ta/ e/%ense e/+eeds in+ome ta/es

%ayale

9 "e2erred ta/ liailities arise

6 Tax base: Amo*nt at ,hi+h the asset or liaility is :al*ed 2or ta/%*r%oses

6 Carrying amount: Amo*nt at ,hi+h the asset or liaility is :al*ed

a++ordin& to a++o*ntin& %rin+i%les

Co%yri&ht ' ()13 C!A Instit*te 3


4/27


Co%yri&ht ' ()13 C!A Instit*te ;

"i22eren+es et,een a++o*ntin& %ro2it and ta/ale in+ome +an o++*r in

se:eral ,ays86 Re:en*es and e/%enses ein& re+o&ni


5/27

ACCOUNTIN PRO!ITS AN"

TAXA#$E INCOME8 EXAMP$E

Ass*me a +om%any o,ns e>*i%ment %*r+hased at the e&innin& o2 the()); 2is+al year 2or ?()5))) !or sim%li+ity5 ass*me a sal:a&e :al*e o2

?) at the end o2 the e>*i%ment’s *se2*l li2e Ass*me a ta/ rate o2 3)@

9 A++o*ntin& standards %ermit e>*i%ment to e de%re+iated on a

strai&ht9line asis o:er a 1)9year %eriod ann*al de%re+iation ,ill e

?(5))) -?()5))) B 1)0

9 Ta/ standards in the 4*risdi+tion s%e+i2y that e>*i%ment sho*ld e

de%re+iated on a strai&ht9line asis o:er a 9year %eriod ann*al

de%re+iation ,ill e ?(5D -?()5))) B 0

Co%yri&ht ' ()13 C!A Instit*te


6/27


TAXA#$E INCOME8 EXAMP$E

Co%yri&ht ' ()13 C!A Instit*te F

Period Ending 31 March ( millions! "##$ "##% "##&

A++o*ntin& %ro2it %rior to de%re+iatione/%ense ?(D5)) ?15(D) ?F5))

"e%re+iation e/%ense G (5)))

G (5)))

G (5)))

Pro2it e2ore ta/ (F5)) 15(D) ;5))

In+ome ta/es ased on a++o*ntin& %ro2ite2ore ta/ ?D5)1) ?;5D; ?15;1)

Ta/ale in+ome %rior to de%re+iatione/%ense ?(D5)) ?15(D) ?F5))

"e%re+iation e/%ense G (5D

G (5D

G (5D

Ta/ale in+ome (5D;3 1;5;(3 35D;3In+ome ta/es %ayale 53 ;53( 1513

"i22eren+e ?( ?( ?(


7/27


TAXA#$E INCOME8 EXAMP$E -CONTINUE"0

( millions! "##$ "##% "##&

In+ome ta/ %ayale -ased on ta/ a++o*ntin&0 ?53 ?;53( ?1513

Chan&e in de2erred ta/ liaility ( ( (

In+ome ta/ -ased on 2inan+ial a++o*ntin&0 ?D5)1) ?;5D; ?15;1)


( millions! "##$ "##% "##&

E>*i%ment :al*e 2or a++o*ntin& %*r%oses-+arryin& amo*nt0 ?1;5))) ?1F5))) ?1D5)))

E>*i%ment :al*e 2or ta/ %*r%oses -ta/ ase0 115;( 1;5(DF 151;3

"i22eren+e ?(51 ?151; ?D

?D

3)@J ?(

?151;

3)@J ?1;

?(51

3)@J ?1

Amo*nt o2 de2erred ta/

liaility


8/27

TAX #ASE O! ASSET8 EXAMP$E SO$UTION

Co%yri&ht ' ()13 C!A Instit*te D

6 Com%any A#C +a%itali


9/27

TAX #ASE O! $IA#I$IT8 EXAMP$E


6 Com%any A#C re+ei:ed in ad:an+e interest o2 K3))5))) Thea%%li+ale ta/ le&islation re>*ires that interest e re+o&ni


10/27

TAX #ASE O! $IA#I$IT8 EXAMP$E SO$UTION

Co%yri&ht ' ()13 C!A Instit*te 1)

6 Com%any A#C re+ei:ed in ad:an+e interest o2 K3))5))) The a%%li+ale ta/

le&islation re>*ires that interest e re+o&ni


11/27


12/27

TAX RATE CHANES8 EXAMP$E

Co%yri&ht ' ()13 C!A Instit*te 1(

( Millions! "##$ "##% "##&E>*i%ment :al*e 2or a++o*ntin& %*r%oses-+arryin& amo*nt0 ?1;5))) ?1F5))) ?1D5)))

E>*i%ment :al*e 2or ta/ %*r%oses -ta/ ase0 115;( 1;5(DF 151;3

"i22eren+e ?(51 ?151; ?D

?D

3)@J ?(

?151;

3)@J ?1;

?(51

3)@J ?1


liaility

?(51

(@J ?F;3


liaility

Assume that the taxing authority changed the income

tax rate to 25% for 2006.


13/27

TEMPORAR AN" PERMANENT "I!!ERENCES

6 Creation o2 a de2erred ta/ asset or liaility o++*rs9 Only i2 the oo.=ta/ di22eren+e is tem'orary -ie5 i2 it re:erses itsel2 at

some 2*t*re date0 and9 Only to s*+h an e/tent that the alan+e sheet item is e/%e+ted to

+reate 2*t*re e+onomi+ ene2its or +osts 2or the +om%any

6 Permanent differences et,een ta/ and 2inan+ial re%ortin& o2 re:en*e-e/%enses0 are di22eren+es that will not e re:ersed at some 2*t*re date

9 They do not &i:e rise to de2erred ta/

9 They res*lt in a di22eren+e et,een the +om%any’s e22e+ti:e ta/ rate

and stat*tory ta/ rate

9 Permanent di22eren+es ty%i+ally in+l*de

6 In+ome or e/%ense items not allo,ed y ta/ le&islation

6 Ta/ +redits 2or some e/%endit*res that dire+tly red*+e ta/es



14/27

TEMPORAR AN" PERMANENT "I!!ERENCES8

EXAMP$ES

eason for )ifference Ty'e of )ifference*

Items o2 in+ome re+o&ni


15/27

TREATMENT O! TEMPORAR "I!!ERENCES


+alance,heet Item Carrying Amount -s. Tax +ase

esults in )eferred TaxAsset/0iability

Asset Carryin& amo*nt Q Ta/ ase "e2erred ta/ liaility

Asset Carryin& amo*nt Ta/ ase "e2erred ta/ asset

$iaility Carryin& amo*nt Q Ta/ ase "e2erred ta/ asset

$iaility Carryin& amo*nt Ta/ ase "e2erred ta/ liaility


16/27

A$UATION A$$O7ANCE

aluation allo2ance

9 A +ontra9asset a++o*nt9 A reser:e +reated a&ainst de2erred ta/ assets ased on the li.elihood

o2 reali


17/27


A$UATION A$$O7ANCE8

EXAMP$E "ISC$OSURE


18/27

A$UATION A$$O7ANCE8

EXAMP$E "ISC$OSURE

“The Company has a valuation allowance against substantially all of its U.S. netdeferred tax assets. As of August 3! "##$! the Company had aggregate U.S. tax

net operating loss carryforwards of %.& billion and unused U.S. tax credit

carryforwards of %$' million. The Company also has unused state tax net

operating loss carryforwards of %.' billion and unused state tax credits of %$3

million. (uring "##$! the Company utili)ed approximately %. billion of itsU.S. tax net operating loss carryforwards as a result of *+,T! +- +as and

related transactions. Substantially all of the net operating loss carryforwards

expire in "#"" to "#"/ and substantially all of the tax credit carryforwards

expire in "#3 to "#"$.0

E/+er%t 2rom notes to 2inan+ial statementsMi+ron Te+hnolo&y -())F05 1)9

Co%yri&ht ' ()13 C!A Instit*te 1D


19/27

A$UATION A$$O7ANCE8

EXAMP$E "ISC$OSURE



20/27

INCOME STATEMENT8 EXAMP$E

Co%yri&ht ' ()13 C!A Instit*te ()

Portions omitted


21/27

Co%yri&ht ' ()13 C!A Instit*te (1

A$UATION A$$O7ANCE8 EXAMP$E

"ISC$OSURE


22/27

Co%yri&ht ' ()13 C!A Instit*te ((

A$UATION A$$O7ANCE8

EXAMP$E "ISC$OSURE


23/27

Co%yri&ht ' ()13 C!A Instit*te (3

#A$ANCE SHEET8 EXAMP$E


24/27

Co%yri&ht ' ()13 C!A Instit*te (;

#A$ANCE SHEET8 EXAMP$E

-CONTINUE"0


25/27

COMPARISON O! I!RS AN" US AAP


To'ic I, 4.,. 5AAP

Re:al*ation o2 %lant5%ro%erty5 ande>*i%ment and

intan&ile assets

"e2erred ta/re+o&ni*ity

Not a%%li+ale e+a*sere:al*ation is %rohiited

Meas*rement o2de2erred ta/es

Ta/ rates and ta/ la,sthat ha:e eenena+ted ors*stanti:ely ena+ted

Use o2 s*stanti:elyena+ted rates is not%ermitted Ta/ rate and ta/

la,s *sed m*st ha:e eenena+ted


26/27

COMPARISON O! I!RS AN" US AAP

Co%yri&ht ' ()13 C!A Instit*te (F

To'ic I, 4.,. 5AAP

Re+o&nition o2 de2erredta/ assets

Re+o&ni


27/27

SUMMAR

6 "i22eren+es et,een the re+o&nition o2 re:en*e and e/%enses 2or ta/ and

a++o*ntin& %*r%oses may res*lt in ta/ale in+ome di22erin& 2rom a++o*ntin&

%ro2it

6 Tem%orary di22eren+es et,een a++o*ntin& %ro2it and ta/ale in+ome -ie5

di22eren+es that ,ill re:erse o:er time0 &i:e rise to de2erred ta/ assets and=or

liailities

6 Permanent di22eren+es et,een a++o*ntin& %ro2it and ta/ale in+ome -ie5

di22eren+es that ,ill not e re:ersed at some 2*t*re date0 do not &i:e rise to a

de2erred ta/ asset or liaility

6 "e2erred ta/ assets m*st e assessed 2or their %ros%e+ti:e re+o:eraility I2 it is

%roale that they ,ill not e re+o:ered at all or %artly5 the +arryin& amo*nt is

red*+ed6 Under US AAP5 red*+tion o2 de2erred ta/ assets is done thro*&h the *se o2

a :al*ation allo,an+e -a +ontra9a++o*nt05 ,ith %otential 2or s*se>*ent

re:ersal


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