© 2004 McGraw-Hill Ryerson. McGraw-Hill Ryerson Chapter 16 Accounting for Income Taxes.

© 2004 McGraw-Hill Ryerson.McGraw-Hill Ryerson

Chapter 16

Accounting for Income Taxes

© 2004 McGraw-Hill RyersonMcGraw-Hill Ryerson

Slide16-2

The CRA administers the

rules for preparing tax returns.

The CRA administers the

rules for preparing tax returns.

Financial statement income tax expense.

Financial statement income tax expense.

CRA income taxes payable.

CRA income taxes payable.

GAAP is the set of rules for preparing

financial statements.

GAAP is the set of rules for preparing

financial statements.

Usually. . . Results in . . . Results in . . .

The difference between tax expense and tax payable is referred to as Future Income Taxes.

The difference between tax expense and tax payable is referred to as Future Income Taxes.

Future Income Tax Assets/Liabilities


Slide16-3

Temporary Differences

These are called temporary

differences.

Often, the difference between pretax accounting income and taxable income results from items entering the income

computations at different times.

Often, the difference between pretax accounting income and taxable income results from items entering the income

computations at different times.


Slide16-4

Temporary differences will reverse out in one or more future periods.

Temporary differences will reverse out in one or more future periods.

Temporary Differences

Accounting Income>Taxable Income

Future Taxable Amounts

Future Income Tax Liability

Accounting Income<Taxable Income

Future Deductible Amounts

Future Income Tax Asset


Slide16-5

Kent Land Management reported pretax income of $100 million in 2005, 2006 and 2007, plus additional 2005 income of $40 million from installment sales of

property.

The installment sales income is reported on the tax return when it is collected in 2006 ($10 million) and in

2007 ($30 million).

The enacted tax rate is 40% each year.2005 2006 2007 Total

Accounting Income 140$ 100$ 100$ 340$ Instal. Sale on inc. stmt. (40) 0 0 (40)$ Instal. Sale on tax return - 10 30 40$ Taxable Income 100$ 110$ 130$ 340$

Future Income Tax Liabilities


Slide16-6


In this case there is no receivable for tax purposes since the installment is taken into taxable income when

received.

The carrying (book) value is reduced as the cash is received, which in turn reduces the temporary difference.

In this case there is no receivable for tax purposes since the installment is taken into taxable income when

received.

The carrying (book) value is reduced as the cash is received, which in turn reduces the temporary difference.

Tax Basis dr. (cr.)

Carrying Value

Temporary Difference

Receivable 2005 $0 40$ (40)$ Receivable 2006 0 30 (30) Receivable 2007 0 0 0


Slide16-7

The temporary differences in the yellow boxes create Future Income Tax assets because they

result in deductible amounts in the future.

The temporary differences in the yellow boxes create Future Income Tax assets because they

result in deductible amounts in the future.

Revenues (or gains) Expenses (or losses)

Items reported on

the tax return

Installment sales of property (installment method for taxes)

Estimated expenses and losses (tax deductible when paid)

AFTER the income

statement

Unrealized gain from recording investments at fair value (taxable when asset is sold)

Unrealized loss from recording investments at fair value or inventory at LCM (tax deductible when asset is sold)

Items reported on

the tax return

Rent or subscriptions collected in advance

CCA on tax return (straight-line on income statement)

BEFORE the income

statement

Other revenue collected in advance

Prepaid expenses (tax deductible when paid)


Slide16-8

Future Income Tax Assets/LiabilitiesExample

Compute income tax expense and income tax payable.

Income TaxStatement Return Difference

Revenues ? ? ?Less: Amortization ? ? ? Other expenses ? ? ?Income before taxes ? ? ?

× Tax rate ? ? ?Income taxes ? ? ?


Slide16-9

Woods reported pretax income in 2005, 2006, 2007 and 2008 of $100 million. In 2005 an asset is acquired for $100 million. It is amortized for financial reporting purposes over 4 years on a straight-line basis with no

residual value. For tax purposes the CCA for the period 2005-2008 is as follows: $33 million, $44

million, $15 million and $8 million. The enacted tax rate is 40%.

2005 2006 2007 2008Accounting Inc. 100$ 100$ 100$ 100$ Amortizaion 25 100 100 25 CCA (33)$ (44)$ (15)$ (8)$ Taxable Income 92$ 156$ 185$ 117$

Future Income Tax Assets/Liabilities


Slide16-10



Revenues 125$ Less: Amortization 25

Income before taxes 100$

× Tax rate 40%Income taxes 40.0$

Compute Woods income tax expense and income tax payable.

The income tax amount computed based on financial statement income

is income tax expense for the

period.

The income tax amount computed based on financial statement income

is income tax expense for the

period.


Slide16-11



Revenues 125$ 125$ Less: Amortization 25 33

Income before taxes 100$ 92$

× Tax rate 40% 40%Income taxes 40.0$ 36.8$

Income taxes based on tax

return income are the taxes

payable for the period.

Income taxes based on tax

return income are the taxes

payable for the period.



Slide16-12



Revenues 125$ 125$ -$ Less: Amortization 25 33 (8) Other expensesIncome before taxes 100$ 92$ 8$

× Tax rate 40% 40% 40%Income taxes 40$ 36.8$ 3.2$

The Future Income Tax for the period of $3.2 million, the

difference between income tax expense of $40 million and income tax payable of $36.8

million.

The Future Income Tax for the period of $3.2 million, the

difference between income tax expense of $40 million and income tax payable of $36.8

million.



Slide16-13


The entry to record the Future Income Taxes would appear as follows:

The entry to record the Future Income Taxes would appear as follows:


Slide16-14

Future Income Tax AssetsLane Electronics reported pretax income in 2005, 2006 and 2007 of $70 million, $100 million and $100 million respectively. The 2005 income statement includes a

warranty expense that is deducted for tax purposes when paid in 2006 ($15 million) and 2007 ($15 million).

The company is subject to a 40% tax rate.

There are no other temporary differences.

Lane Electronics reported pretax income in 2005, 2006 and 2007 of $70 million, $100 million and $100 million respectively. The 2005 income statement includes a

warranty expense that is deducted for tax purposes when paid in 2006 ($15 million) and 2007 ($15 million).

The company is subject to a 40% tax rate.

There are no other temporary differences.

2005 2006 2007Accounting Inc. 70$ 100$ 100$ Warranty exp. 30 - - Warranty paid -$ (15)$ (15)$ Taxable Income 100$ 85$ 85$


Slide16-15

Future Income Tax Assets

Income tax expense = $70 × 40% = $28Income tax expense = $70 × 40% = $28

Income tax payable = $100 × 40% = $40Income tax payable = $100 × 40% = $40



Description Debit CreditIncome tax expense 28 Future income tax asset 12

Income tax payable 40

General Journal


Slide16-16


2006 2007 Total

Future taxable amounts 15$ 15$ 30$

Enacted tax rate 40% 40%

Future inc. tax asset 6$ 6$ 12$

Description Debit CreditIncome tax expense 28

Future income tax asset 12 Income tax payable 40

General Journal

2005 12 Future Income Tax Asset

The Future Income Tax Asset

represents the Future Income

Taxes Baxter will recover in 2006

and 2007.


Slide16-17


Recall this information for Baxter for 2005.





Description Debit CreditIncome tax expense 40 Future income tax asset 6 Income tax payable 34

2006 General JournalDescription Debit Credit

Income tax expense 40 Future income tax asset 6 Income tax payable 34

2006 General Journal


Slide16-18


2005 12 6 20066 2007

0 0

Future income tax asset

Reversing differences

Description Debit CreditIncome tax expense 40 Future income tax asset 6 Income tax payable 34

General JournalDescription Debit Credit

Income tax expense 40 Future income tax asset 6 Income tax payable 34

General Journal

Originating difference


Slide16-19

Tomorrow Publishing reported pretax income in 2005, 2006 and 2007 of $80 million, $155 million and $105 respectively. The 2005 income statement does not

include $20 million of magazine revenue received in that year for one and two-year subscriptions.

The revenue is reported for tax purposes in 2005 and is earned in 2006 ($15 million) and 2007 ($5 million).

The income tax rate is 40% for each year.2005 2006 2007 Total

Accounting Inc. 80$ 115$ 105$ 300$ Subs. Rev. on IS (15) (5) (20)Subs. Rev. on Tax R. 20 0 0 20Taxable Income 100$ 100$ 100$ 300$



Slide16-20

Calculation of Future Income Tax Asset 2005 2006 2007 TotalFuture deductible amount 20$ (15)$ (5)$ -$ Tax rate 40% 40% 40% 40%Fut. Inc. Tax Asset year-end 8$ (6)$ (2)$ -$

2005 2006 2007 TotalAccounting Inc. 80$ 115$ 105$ 300$ Subs. Rev. on IS (15) (5) (20) Subs. Rev. on Tax R. 20 0 0 20Taxable Income $100 100$ 100$ $300


Now, let’s record the income tax entry for 2005.

This is the computation for the Future Income Tax Asset.


Slide16-21

Income tax expense = $80m × 40% = $32Income tax expense = $80m × 40% = $32


Income tax expense = $80m × 40% = $32Income tax expense = $80m × 40% = $32




Slide16-22

2005 8 Balance 8



After posting the previous entry, the Future Income Tax Asset account will have a balance

of $8 million.


Slide16-23






Let’s see the income tax entry for 2006.

In 2006, the balance in the Future Income

Tax Asset should decrease

to $2m.

In 2006, Tomorrow earns $115m for financial reporting purposes.


Slide16-24


2005 8 6 2006Balance 2


Reversing differenceOriginating difference


Slide16-25


Calculation of Future Income Tax Asset 2005 2006 2007Future deductible amount 20$ 5$ -$ Tax rate 40% 40% 40%Future income tax asset at year-end 8$ 2$ -$

2005 2006 2007 TotalAccounting Inc. 80$ 115$ 105$ 300$ Subs. Rev. on IS (15) (5) (20) Subs. Rev. on Tax R. 20$ -$ -$ 20$

This is the computation for the Future Income Tax Asset.

Can you finish Tomorrow’s income tax entries for 2007?


Slide16-26


2005 8 6 20062 2007

Balance -


This would be the entry for 2007.

At the end of 2007, the balance in the Future Income Tax Asset would be zero.


Slide16-27

Sharpen Your Pencil . . . There Is Still More!!


Slide16-28

Valuation Allowance

A valuation allowance account is required when it is more likely than not that some portion of the Future Income Tax asset will not be realized.

The Future Income Tax asset is then reported at its net realizable value.

A valuation allowance account is required when it is more likely than not that some portion of the Future Income Tax asset will not be realized.

The Future Income Tax asset is then reported at its net realizable value.


Slide16-29

Valuation Allowances

Remember that a future deductible amount reduces taxable income and saves taxes

only if there is taxable income to be reduced when the future deduction is

available.

A valuation allowance is needed if taxable income is anticipated to be insufficient to

realize the tax benefit.


Slide16-30

Valuation Allowances

The valuation allowance must be re-evaluated at the end of each accounting

period like all other allowances.

The appropriate balance is decided and the balance is adjusted to create that

balance.

The account commonly used is Valuation allowance – future income tax asset.


Slide16-31

Permanent Differences

Created when an income item is included in taxable income or

accounting income but

will never be

included in the computation of the other.


Slide16-32

Dividends between taxable Canadian corporations

Equity in earnings of significantly-influenced investees

50% of capital gains Golf and social club dues 50% of meals and entertainment Interest and penalty on taxes

Dividends between taxable Canadian corporations

Equity in earnings of significantly-influenced investees

50% of capital gains Golf and social club dues 50% of meals and entertainment Interest and penalty on taxes

Permanent Differences - Examples


Slide16-33

Political contributions Fines and penalties Expenses related to earning nontaxable

income Nontaxable revenue Proceeds from life insurance policies

carried by the company on key officers and employees

Political contributions Fines and penalties Expenses related to earning nontaxable

income Nontaxable revenue Proceeds from life insurance policies

carried by the company on key officers and employees

Permanent Differences - Examples


Slide16-34

Permanent Differences

Disregarded when determining both taxes payable and the Future

Income Tax asset or liability.

Disregarded when determining both taxes payable and the Future

Income Tax asset or liability.


Slide16-35

Kent Land Management reported pretax income in 2005 of $100 million, except for

additional income of $40 million from installment sales of property and $5 million dividends from Canadian corporations in

2005.

The installment income is reported for tax purposes in 2006 ($10 million) and 2007 ($30

million).

The enacted tax rate is 40% each year.

Permanent Differences - Example


Slide16-36 Permanent Differences -

Example

Current year Future Taxable Amounts

2005 2006 2007

Accounting income $145Permanent difference: Canadian dividends (5)Temporary difference: Installment income (40) $10 $30Taxable income $100Enacted tax rate 40% Tax payable currently $40

Originating difference Reversing differencesReversing differences


Slide16-37

Permanent Differences - Example

The 2005 journal entry is as follows:The 2005 journal entry is as follows:


Slide16-38

Tax Rate Considerations

Future Income Tax assets and liabilities should be determined using the Future Income Tax rates, if known.

The Future Income Tax asset or liability must be adjusted if a change in a tax law or rate occurs.

Future Income Tax assets and liabilities should be determined using the Future Income Tax rates, if known.

The Future Income Tax asset or liability must be adjusted if a change in a tax law or rate occurs.

CRA


Slide16-39

Tax Rate Considerations

Let’s use the previous Kent Land Management example to demonstrate this concept.

Let’s assume that the enacted tax rates are 40% for 2005 and 2006, and 35% for 2007.

Let’s use the previous Kent Land Management example to demonstrate this concept.

Let’s assume that the enacted tax rates are 40% for 2005 and 2006, and 35% for 2007. CRA


Slide16-40

Tax Rate Changes - Example

Current year Future Taxable Amounts

2005 2006 2007 Total

Accounting income $145Permanent difference: Canadian dividends (5)Temporary difference: Installment income (40) $10 $30Taxable income $100Enacted tax rate 40% 40% 35% Tax payable currently $40Future income tax liability $4 $10.5 $14.5


Slide16-41


The 2005 journal entry is as follows:The 2005 journal entry is as follows:


Slide16-42


Income tax expense = $100 x 40% = $40Income tax expense = $100 x 40% = $40

Change in FITL = $14.5 - $10.5 = $4Change in FITL = $14.5 - $10.5 = $4


Income tax expense = $100 x 40% = $40Income tax expense = $100 x 40% = $40

Change in FITL = $14.5 - $10.5 = $4Change in FITL = $14.5 - $10.5 = $4


Description Debit CreditIncome tax expense 40 Future income tax liability 4 Income tax payable 44


Income tax expense 40 Future income tax liability 4 Income tax payable 44


In 2006 the Future income tax liability must beadjusted to $10.5 million.


Slide16-43

Tax Rate Changes

Now let’s assume that government passes a new tax law in 2006 that will cause the

2007 tax rate to be 30% instead of the previously scheduled 35% rate.

30%35%

Fiscal2006

Fiscal2007

2007 Tax Rate Change


Slide16-44

Tax Rate Changes

When a change in the tax rate is enacted into law its effect on the

future income tax asset and liability accounts should be recorded

immediately as an adjustment to income tax expense in the period of

the change.


Slide16-45


14.5 20052006 5.5

9.0 2006

Future Income Tax Liability

$30 million x 30%

Note that the balance in the future income tax liability account is based on

the new rate being applied to the temporary differences.


Slide16-46


Income tax expense = $38.5Income tax expense = $38.5

Change in FITL = $14.5 - $9 = $5.5Change in FITL = $14.5 - $9 = $5.5


Income tax expense = $38.5Income tax expense = $38.5

Change in FITL = $14.5 - $9 = $5.5Change in FITL = $14.5 - $9 = $5.5


Description Debit CreditIncome tax expense 38.5Future income tax liability 5.5 Income tax payable 44.0


Income tax expense 38.5Future income tax liability 5.5 Income tax payable 44.0


In 2006 the Future income tax liability must beadjusted to $9 million ($30 million x 30%).


Slide16-47

Net Operating Losses (NOL)

Tax laws often allow a company to use tax NOLs to offset taxable income in earlier or

subsequent periods.

Tax laws often allow a company to use tax NOLs to offset taxable income in earlier or

subsequent periods.

When used to offset earlier taxable income:

Called: operating loss carryback.

Result in a tax refund.

When used to offset earlier taxable income:

Called: operating loss carryback.

Result in a tax refund.

When used to offset future taxable income:

Called: operating loss carryforward.

Result in reduced tax payable.

When used to offset future taxable income:

Called: operating loss carryforward.

Result in reduced tax payable.


Slide16-48


The general principle is that the tax benefits of losses should be recognized in

the period of the loss to the extent possible.

It is usually advantageous to carry back losses by filing an amended tax return to

realize the benefit sooner.


Slide16-49

Carryback and Carryforward

Current Year

-1-2

Carryback Period

+3+2+1 +6 +7+4 +5

Carryforward Period

The NOL may be applied against taxable income from three previous years.

Unused NOL may be carried forward for 7 years.

The NOL may be applied against taxable income from three previous years.

Unused NOL may be carried forward for 7 years.

-3


Slide16-50


During 2005, its first year of operations, Atlantic reported an operating loss of $125

million for financial reporting and tax purposes. The enacted tax rate is 40%.

Let’s assume that the company determines that it is more likely than not to generate sufficient taxable income in future so that

the benefit can be realized.

During 2005, its first year of operations, Atlantic reported an operating loss of $125

million for financial reporting and tax purposes. The enacted tax rate is 40%.

Let’s assume that the company determines that it is more likely than not to generate sufficient taxable income in future so that

the benefit can be realized.


Slide16-51

Net Operating Losses (NOL) Tax year

Taxable Income

Tax rate

Taxes Paid

2005 ($125m) 40% -$

In 2005, no taxes are paid and Atlantic will carry forward the benefit of the loss carryforward.

Description Debit CreditFuture income tax asset * 50 Future income tax benefit 50 * ($125 million x 40%)


Future income tax asset * 50 Future income tax benefit 50 * ($125 million x 40%)



Slide16-52


Operating loss before income taxes (125)$ Less: Future benefit due to loss carryforward (50) Net operating loss (125)$

Atlantic Laminating CorporationPartial Income Statement

For the Year Ended December 31, 2005Operating loss before income taxes (125)$ Less: Future benefit due to loss carryforward (50) Net operating loss (125)$


For the Year Ended December 31, 2005

Atlantic’s Income Statement for 2005 looks like this . . .


Slide16-53

NOL – Future Taxable Income Not Likely

Assume that Atlantic’s future is uncertain and that there is insufficient evidence about the possibility of future taxable

income to recognize the income tax asset and benefit related to the $125 million of

income tax losses.

In this case there would not be any income tax entry for 2005.

WHY?


Slide16-54

NOL – Future Taxable Income Not Likely

The amounts do not meet the definition of assets per the conceptual framework.

There is no evidence of future economic benefits.

The amounts and expiry dates of unrecognized income tax asset related to the carryforwards of unused tax losses

must be disclosed.


Slide16-55


During 2005 Atlantic reported an operating loss of $125 million for financial reporting and tax purposes.

The enacted tax rate is 40% for 2005.

Taxable income, tax rates and income taxes paid in the two previous years were as follows:

During 2005 Atlantic reported an operating loss of $125 million for financial reporting and tax purposes.

The enacted tax rate is 40% for 2005.

Taxable income, tax rates and income taxes paid in the two previous years were as follows:

Taxable income Tax rates

Income taxes paid

2003 $20 35% 7$ 2004 55 40% 22


Slide16-56


($ millions) Prior Years Current

2003 2004 2005Operating loss (125) Loss carryback (20) (55) 75 Loss carryforward 50

$0Enacted tax rate 35% 40% 40% Tax payable (refundable) ($7) ($22) $0

The total loss was $125 million. $20 m was carried back to eliminate the 2003 income and $55 m was

carried back to eliminate the 2004 income. The remaining $50 m will be carried forward.


Slide16-57


To recognize the carrybacks and the carryforward, the following entry is made:

Description Debit CreditReceivable-income tax refund * 29 Future income tax asset ($50 x .4) 20 Income tax benefit 49* ($7 from 2003 + $22 from 2004)


Receivable-income tax refund * 29 Future income tax asset ($50 x .4) 20 Income tax benefit 49* ($7 from 2003 + $22 from 2004)


Atlantic’s income statement for 2005 willlook like this . . . . . .

Atlantic’s income statement for 2005 willlook like this . . . . . .


Slide16-58


Operating loss before income taxes (125)$ Less: Income Tax benefit: Tax refund from loss carryback 29 Future tax savings from loss carryfwd. 20

49 Net operating loss (76)$


For the Year Ended December 31, 2005Operating loss before income taxes (125)$ Less: Income Tax benefit: Tax refund from loss carryback 29 Future tax savings from loss carryfwd. 20

49 Net operating loss (76)$




Slide16-59


Let’s assume that Atlantic makes accounting income of $15 million in 2006.

2005 2006Accounting income: $15 Temporary difference Loss carryforward 50 (15)Taxable income $0 Enacted tax rate 40% Tax payable currently $0

2005 2006Accounting income: $15 Temporary difference Loss carryforward 50 (15)Taxable income $0 Enacted tax rate 40% Tax payable currently $0

$15m of the $50m loss carryforward will be appliedto the 2006 taxable income.


Slide16-60


The loss carryforward now stands at $35 million and the resulting tax benefit is 40% or

$14 million.

Therefore the following journal entry I required to reduce the benefit from $20 million

to $14 million.

Description Debit CreditIncome tax expense 6 Future income tax asset 6


Income tax expense 6 Future income tax asset 6



Slide16-61


Using the previous example, let’s assume that the company’s future is uncertain on December 31,

2005 and there is insufficient evidence about the possibility of future taxable income.

The only entry required would be to recognize loss carryback.

Description Debit CreditReceivable-income tax refund 29 Income tax benefit-op. loss 29


Receivable-income tax refund 29 Income tax benefit-op. loss 29



Slide16-62


Now let’s assume the company generates pretax income of $65 million in 2006. After applying the $50 million loss carryforward, tax is payable on

only $15 million income.

With a tax rate of 40% the following entry is made:

Description Debit CreditCurrent income tax expense * 6 Income tax payable 6 * ($15 million x 40%)


Current income tax expense * 6 Income tax payable 6 * ($15 million x 40%)



Slide16-63


Description Debit CreditCurrent income tax expense * 6 Income tax payable 6 * ($15 million x 40%)


Current income tax expense * 6 Income tax payable 6 * ($15 million x 40%)


The potential tax benefit associated with the losscarryforward was not recognized

in 2005 as an asset; therefore, it is recognized in 2006.


Slide16-64


The $6 million current tax expense is made up of two components: income tax

expense of $26 million accrued on the 2006 income of $65 million and the $20

million tax benefit due to the realization of the unrecorded loss carryforward.

CICA HB 3465 suggests that these be disclosed separately.


Slide16-65


Income before income taxes 65$ Income Tax expense: Current expense (26) Current benefit due 20

(6) Net income 59$


For the Year Ended December 31, 2006Income before income taxes 65$ Income Tax expense: Current expense (26) Current benefit due 20

(6) Net income 59$



The 2006 income statement would appear as follows:


Slide16-66

Disclose the following: Total of all Future Income Tax

liabilities and assets. Total valuation allowance

recognized (current vs non current).

Net change in valuation account. Approximate tax effect of each

type of temporary difference (and carryforward).

Disclose the following: Total of all Future Income Tax

liabilities and assets. Total valuation allowance

recognized (current vs non current).

Net change in valuation account. Approximate tax effect of each

type of temporary difference (and carryforward).

Future Income Tax

assets/liabilities are classified as

current or noncurrent based

on the classification of the related asset

or liability.

Future Income Tax

assets/liabilities are classified as

current or noncurrent based

on the classification of the related asset

or liability.

Balance Sheet Classification


Slide16-67

Current portion of tax expense (benefit) Future portion of tax expense (benefit),

with separate disclosure for Portion that does not include the effect of the

following separately disclosed amounts. Operating loss carryforwards. Adjustments due to changes in tax laws or

rates. Adjustments to the beginning-of-the-year

valuation allowance due to revised estimates. Investment tax credits.

Current portion of tax expense (benefit) Future portion of tax expense (benefit),

with separate disclosure for Portion that does not include the effect of the

following separately disclosed amounts. Operating loss carryforwards. Adjustments due to changes in tax laws or

rates. Adjustments to the beginning-of-the-year

valuation allowance due to revised estimates. Investment tax credits.

Additional Disclosures


Slide16-68

If this is the case it should be classified according to when underlying temporary difference reverses.

Operating Loss carryforwards are also unrelated to a specific asset or liability and are classified as current or noncurrent according to when there is sufficient income to use LCF.

If this is the case it should be classified according to when underlying temporary difference reverses.

Operating Loss carryforwards are also unrelated to a specific asset or liability and are classified as current or noncurrent according to when there is sufficient income to use LCF.

Future Income Tax Not Related to a Specific Asset or Liability


Slide16-69

Intraperiod Tax Allocation

CICA HB 3465 requires intraperiod tax allocation for: Income from continuing

operations. Discontinued operations. Extraordinary items. Changes in accounting policy. Prior period adjustments (to the

beginning retained earnings).

CICA HB 3465 requires intraperiod tax allocation for: Income from continuing

operations. Discontinued operations. Extraordinary items. Changes in accounting policy. Prior period adjustments (to the

beginning retained earnings).


Slide16-70

Conceptual Concerns

Should Future Income Taxes Not Be Recognized?

Should Future Income Taxes Be Recognized for Only Some Items?

Should Future Income Taxes Be Discounted?

Should Classification Be Based on the Timing of Temporary Difference Reversals?


Slide16-71

End of Chapter 16

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