Chapter 12 - Solution Manual

B a specification that the tax basis of an asset is

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b. A specification that the tax basis of an asset is determined by the tax deductions that would be available if the entity recovered the carrying amount of the asset by sale. c. The introduction of an initial step to determine deferred tax assets and liabilities so that no deferred tax arises if there will be no effect on taxable income when the entity recovers or settles its carrying amount.
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276 d. New definitions of tax credit and investment tax credit as: i. Tax credit is a tax benefit that takes the form of an amount that reduces income tax payable. ii. Investment tax credit is a tax credit that relates directly to the acquisition of depreciable assets. e. Removal of the initial recognition exception in IAS No. 12. f. Changes to the exception in IAS No. 12 from the temporary difference approach relating to a deferred tax asset or liability arising from investments in subsidiaries, branches, associates and joint ventures. g. A proposal to recognize deferred tax assets in full, less, if applicable, a valuation allowance to reduce the net carrying amount to the highest amount that is more likely than not to be realizable against taxable income. h. A proposal that current and deferred tax assets and liabilities should be measured using the probability-weighted average amounts of possible outcomes assuming that the tax authorities will examine the amounts reported to them by the entity and have full knowledge of all relevant information. i. Clarification that the term ‘substantively enacted’ as it relates to income tax legislation means that future events required by the enactment process historically have not affected the outcome and are unlikely to do so. j. A change to the requirements relating to the tax effects of distributions to shareholders. An entity would measure current and deferred tax assets and liabilities using the rate expected to apply when the tax asset or liability is realized or settled, including the effect of the entity’s expectations of future distributions. k. Adoption of the FASB ASC requirements for the allocation of income tax expense to the components of comprehensive income and equity. In particular, some changes in tax effects that were initially recognized outside continuing operations would be recognized in continuing operations. l. The classification of deferred tax assets and liabilities as either current or non-current on the basis of the financial reporting classification of the related non-tax asset or liability. m. A clarification that indicates the classification of interest and penalties is an accounting policy choice and hence must be applied consistently, and introduction of a requirement to disclose the chosen policy. Financial Analysis Case Answers will vary depending on the company selected. CHAPTER 13 Case 13-1 a. There is not enough information presented in the case to determine earnings, but the effect of the leasing alternatives on earnings can be determined. Dagger capitalizes the lease, causing the following earnings effects:
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