PDF_PP_Slides_11_(APSCW_-_F2009)

PDF_PP_Slides_11_(APSCW_-_F2009) - 12/9/2009...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
12/9/2009 1 Objectives: Handout 11 Understand the different reporting objectives for book purposes and tax purposes Understand the notion of tax basis Describe the 2 basic types of book tax differences and the items that cause the differences Understand the relationship between tax expense, taxes payable, and deferred taxes Explain the purpose of the DTA valuation allowance Understand the reporting rules for NOLs Understand how to read and interpret tax disclosures Accounting for Income Taxes
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
12/9/2009 2 Accounting for Income Taxes Income measurement for financial reporting is governed by Handout 11, p. 1 GAAP. Income measurement for tax reporting is governed by the IRC. Pretax Income ( Book Income ) Taxable Income The main accounting issue here is: should the income tax expense in the financial statements be based on taxable income or on book income? Accounting for Income Taxes Accountants are interested in the differences between book Handout 11, p. 2 income and taxable income The income differences are measured using the differences between the book values and tax bases of assets and liabilities. We need to understand the notion of tax basis .
Background image of page 2
12/9/2009 3 Example 1 Assume YYZ Corporation purchases a machine for $10,000. Handout 11, p. 2 It has a 5 year useful life and no salvage value. It will be depreciated using SL depreciation for book purposes and SYD depreciation for tax purposes. In the first year, book depreciation is $2,000 and tax depreciation is $3,333. Book B/S Tax B/S Machine $10,000 $10,000 Less: AD 2,000 3,333 Net BV $ 8,000 Tax Basis $ 6,667 Book Tax Differences Permanent difference are due to items that affect the computation Handout 11, pp 2, Permanent differences of either book income or taxable income but never affect the other. 1. Book revenues that are never included in taxable income (e.g., interest received on tax exempt municipal bonds). 2. Book expenses that are never deducted in calculating taxable income (e.g., fines and other expenses that result from a violation of law, some goodwill impairment, purchased in process R&D). 3. Deductions in calculating taxable income that are never recognized as book expense (e.g., deduction for dividend received from U.S. corporations, percentage depletion of natural resources in excess of their cost).
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
12/9/2009 4 Book Tax Differences Handout 11, pp. 3, 4 Temporary (timing) differences are due to items that are recognized in different periods for tax and book purposes. 1. Items that are included in taxable income before they are recognized as book revenue. 2. Items that are deducted in calculating taxable income before they are recognized as a book expense are recognized as a book expense. 3. Items that are recognized as book revenue before they are included in taxable income.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 19

PDF_PP_Slides_11_(APSCW_-_F2009) - 12/9/2009...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online