FAR | Accounting for income taxes: what to recognize, how to measure, and how to present

The rules, one page each

1. Warranty Accrual Deferred Tax Asset: ASC 740 CalculationWorked example

   Book expense deductible later creates a deferred tax asset measured at the enacted reversal-year rate. Reduce it with a valuation allowance for any portion not more likely than not to be realized.

2. Excess Tax Depreciation: Deferred Tax Liability CalculationWorked example

   Excess tax depreciation creates a taxable temporary difference: carrying amount minus tax basis. Record a deferred tax liability using the enacted rate for the years the difference reverses.

3. Current vs Deferred Tax: Compute Income Tax ExpenseWorked example

   Current tax equals taxable income times the current-year enacted rate. Deferred tax expense or benefit is the net change in deferred tax balances measured at enacted reversal-year rates; total tax expense equals current plus deferred.

4. ASC 740 Tax Provision Practice Problems With SolutionsWorked example

   Current tax uses current-year taxable income and rates. Measure deferred balances at enacted reversal-year rates; their change allocated to income is deferred tax expense or benefit.

5. Which Tax Rate Applies to Deferred Taxes Under ASC 740?Contrasting cases

   Use reversal-year rates enacted by the balance sheet date. Recognize remeasurement in the enactment period, not the effective period; a law enacted after year-end does not adjust prior-year deferred taxes.

6. ASC 740: Valuation Allowance vs. Uncertain Tax PositionsWhat next?

   A valuation allowance covers DTA amounts more likely than not unrealizable based on all evidence. Uncertain tax benefits require more-likely-than-not technical support assuming examination with full knowledge; measure the largest benefit with cumulative probability above 50%.

7. Deferred Tax Presentation and Outside-Basis ExceptionsSort it

   Offset recognized DTAs and DTLs only within the same tax-paying component and jurisdiction; present the net amount as noncurrent. Permanent differences create no deferred tax, and qualifying outside-basis exceptions can prevent DTL recognition.