CAPITULO 19 INTERMEDIA - Chapter 19 Accounting for Income...

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Chapter 19 Accounting for Income Taxes · 19–1 CHAPTER 19 ACCOUNTING FOR INCOME TAXES This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each sup- plement chapter, which can be used to assess and reinforce student understanding of IFRS. Deferred Tax Asset (Non-Recognition) Companies recognize a deferred tax asset for all deductible temporary differences. How- ever, based on available evidence, a company should reduce a deferred tax asset if it is probable that it will not realize some portion or all of the deferred tax asset. “ Probable means a level of likelihood of at least slightly more than 50 percent. Assume that Jensen Co. has a deductible temporary difference of 1,000,000 at the end of its first year of operations. Its tax rate is 40 percent, which means it records a deferred tax asset of 400,000 ( 1,000,000 3 40%). Assuming 900,000 of income taxes payable, Jensen records income tax expense, the deferred tax asset, and income tax payable as follows. Income Tax Expense 500,000 Deferred Tax Asset 400,000 Income Tax Payable 900,000 After careful review of all available evidence, Jensen determines that it is probable that it will not realize 100,000 of this deferred tax asset. Jensen records this reduction in asset value as follows. Income Tax Expense 100,000 Deferred Tax Asset 100,000 This journal entry increases income tax expense in the current period because Jensen does not expect to realize a favorable tax benefit for a portion of the deductible temporary difference. Jensen simultaneously recognizes a reduction in the carrying amount of the deferred tax asset . Jensen then reports a deferred tax asset of 300,000 in its statement of financial position. Jensen evaluates the deferred tax asset account at the end of each accounting period. If, at the end of the next period, it expects to realize 350,000 of this deferred tax asset, Jensen makes the following entry to adjust this account. Deferred Tax Asset ( ± 350,000 2 ± 300,000) 50,000 Income Tax Expense 50,000 Jensen should consider all available evidence, both positive and negative, to deter- mine whether, based on the weight of available evidence, it needs to adjust the deferred tax asset. For example, if Jensen has been experiencing a series of loss years, it reason- ably assumes that these losses will continue. Therefore, Jensen will lose the benefit of the future deductible amounts. Generally, sufficient taxable income arises from temporary taxable differences that
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This note was uploaded on 02/02/2012 for the course ACCO 3350 taught by Professor Alvarez during the Spring '11 term at American International.

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CAPITULO 19 INTERMEDIA - Chapter 19 Accounting for Income...

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