18-Income Tax - Chapter 18 IncomeTaxes IncomeTaxes Current...

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    Chapter 18 Chapter 18                 Income Taxes Income Taxes
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2 Income Taxes Income Taxes Current Income Taxes •Accounting income and taxable income •Calculation of taxable income •Calculation of current income taxes Income Tax Loss Carryover Benefits •Introduction to tax losses •Loss carryback illustrated •Loss carryforward illustrated •Carryforward with valuation allowance •Review of future income tax asset account Future/Deferred Income Taxes •Tax basis •Future income tax liabilities •Future income tax assets •Income tax accounting objectives •Multiple differences illustrated •Tax rate considerations Presentation, Disclosure, and Analysis •Balance sheet presentation •Income and other statement presentation •Disclosure requirements •Analysis •Outstanding conceptual questions IFRS / Private Entity GAAP Comparison •Comparison chart •Looking ahead
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3 Fundamental Concept Fundamental Concept Financial  Statements Tax  Return Income Tax  Expense  (Current and Future) Income Tax  Payable (current) Pretax  Accounting  Income $ Taxable  Income $ Income Tax Act GAAP
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4 Accounting Income and  Accounting Income and  Taxable Income: Taxable Income: Reconciliation of Accounting Income and Taxable Income: Accounting income ± differences = Taxable income Taxable income × current tax rate = Taxes  Payable  and   Current   Income Tax  Expense
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5 Future Tax Liability Example Future Tax Liability Example Chelsea Inc. - 2010 Chelsea Inc. - 2010 Accounting Tax Revenue $130,000 $100,000 Expenses 60,000 60,000 Income $ 70,000 $ 40,000 Tax @ 40% $ 28,000 $ 16,000
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6 Recording Journal Entries  Recording Journal Entries  – e.g. Chelsea Inc. -2010 – e.g. Chelsea Inc. -2010 Journal Entries : Current Income Tax Expense 16,000 Income Tax Payable 16,000 Future Income Tax Expense 12,000 Future Income Tax Liability 12,000
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7 Future Tax Liability Example Future Tax Liability Example Chelsea Inc.  Chelsea Inc.  2010 2011 2012 Accounting Income $70,000 $70,000 $70,000 Adjust for revenue taxable in future period (30,000) 20,000 10,000 Taxable Income $ 40,000 $ 90,000 $ 80,000 Tax payable @ 40% $ 16,000 $ 36,000 $ 32,000
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8 Chelsea Inc. – example continued Chelsea Inc. – example continued Total $30,000 40% $ 12,000 $ 12,000 2011 2012 Future taxable amounts $20,000 $10,000 Future tax rate 40% 40% Future income tax liability $ 8,000 $ 4,000
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9 Permanent vs. Timing and  Permanent vs. Timing and  Temporary (Reversing) Differences Temporary (Reversing) Differences Taxable income is determined by starting with accounting income and adjusting it for differences in the year These differences can be permanent or reversible (timing) differences Accounting income ± differences = Taxable income Accounting income ± differences = Taxable income
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10 Permanent Differences - Examples Permanent Differences - Examples Items, recognized on income statement, but never for income tax purposes: Non-tax-deductible expenses (e.g. fines, golf dues, expenses related to non-taxable revenue) Dividends from taxable Canadian corporations Items, recognized for tax purposes, but not for financial accounting purposes: Depletion allowance of natural resources in excess of cost
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