You are on page 1of 1


The obj of acct for income taxes is to rec. a DTL or DTA for tax conseqences of amts that will be taxable or deductible in future years (transaction/events occurred)
Temp dif- amts reported in dif years. Taxable income might be less than pretax acct inc in year of installment sale but higher in later years when payment collected.
Acct income > taxable income = future taxable amts = def tax liab
(Temp dif will reverse in 1 or more future periods)
Acct income < taxable income = future deductible amts = def tax assets
Valuation allowance is needed if more likely than not some portion of the DTA will not be realized. DTA then reported at its estimated NET REALIZABLE VALUE
Perm dif created when an income item is included in taxable income or acct inc but will never be included in the coputation of another. Ex: int on tax free municipal
bonds is included in acct inc but never included in taxable income.
GAAP req a loss contingency be accrued if probably and can be reasonably estimated. Accuring loss cont leads to DTA. IFRS uses more likely than not (lower than
DTA and DTL use future rates to determine if nown. DTA or DTL must be adjusted if change in tax law/ tax rate occurs.
Categorize multiple temp dif to future taxable amounts or future deductible amounts.
Net Op Loss (NOL)- tax laws often allow a company to use tax NOLs to offset taxable income in earlier or subsequent periods.
Offset earlier taxable income = carryback = tax refund ;
used to offset future taxable income = carryforward = reduce tax payable
NOL may first be applied against ataxable income from 2 prev years and then unused NOL may be carried forward for 20 years.
DTA/DTL are classified as current or non current based on related asset/liab on the Balance sheet. DTA not related to specific asset or liab should be classified
according when the underlying temp dif is expected to reverse.
2 step decision process w/ uncertainty in Inc tax step 1- tax benefit may be reflected if more likely than not company will be able to sustain tax return
Step 2- tax benefit should be measured as largest amount of benefit that is cumulatively greater than 50% likely to be realized.
Intraperiod Tax allocation: Inc State = income from cont op, disct op, extraor items. OCI- inv, postretirement benefit plans, derivatives, foreign currency translation
GAAP= separately reports both disct op and extraordinary items on inc statement and each shown net of tax. IFRS= disc op only item report separately
Ch 17.
Pension plans provide inc during retirement years by setting aside funds during employees working years (accumulate funds plus earnings from inv to replace wages)
-Special tax treatment: 1) cover at least 70% of employees. 2) cannot discriminate in favor of high pay empl. 3) funded advance of retirement through irrevocable trust
fund. 4) benefits must vest after specified period of service. 5) complies w/ timing and amount of contributions. (defined contribution plans more pop)
Defined contribution plan defined by agreement, employer deposits agreed upon amt into directed inv fund, employee bears all risk of pension fund performance.
Defined Benefit plan employer committed to specified retirement benefits, retirement benefits are based on formula that consider yrs of servce, comp, and age.,
employer bears all risk of pension fund performance. Ex: social security
-actuary assesses vaious uncertainties and est the companys oblig to employees in connection w/ its pension plan. Periodic exp
ABO(accum benefit oblig)- actuarys est of total retirement benefits earned so far by employees, pension formula using existing compensation lvls.
Vested benefit obligation VBO portion of accum benefit obligation ENTITLED to rec regardless of employment
PBO(projected)- actuarys est of total retirement benefit( at discount PV) earned by employee, and apply pension formula using future compensation lvl.
-PBO more meaningful measurement b/c it includes a projection of what salary might be at retirement.
Pension plan assets not reported sep in BS but are netted together w/ PBO to report either a net pension asset(debit) or net pension liab (cr)
Higher expected return on plan assets, less the employer must actually contribute. If relatively low, dif paid by higher contributions.
Pension plan over funded is MV>PV, underfunded vice versa.
PBO plan asset at fair value = underfunded/overfunded status.
GAAP= req gains and losses be included among OCI items in statement of comprehensive income. AOCI in shareholders equity of BS. IFRS = unrec g/l BS
GAAP= PSC included among OCI items and becomes part of AOCI where it is amortized over avg period. IFRS = relates to benefits that have vested. Benefit oblig.
IFRS does not permit reporting other comprehensive income in statement of shareholder equity. No req to present various components of pension exp as single net amt.
Ch 18.
AOCI has 4 types of g/l not included in net income = net holding G/L on inv, G/L from amendments to postretirement benefit plan, G/L foreign currency translation,
G/L derivatives.
Reported periodically as created and as a cum amount. 2 options for inc created during reporting period additional section on IS or separate statement after income
statement. Accumulated amt of CI is reported as separate item of SE in balance sheet.
GAAP= common stock, pref stock, PIC-excess of par, common, PIC-excess of par, pref. IFRS = ord shares, pref share, share on prem, share on prem, pref share
Fundamental share rights right to vote, preemptive right to maintain % ownership, right to share profit when dividends declared, rights to share in distribution of
assets if company liquidated.
Par value stock - $ amt per share is stated in corp charter, par value has no relationship to MV. No Par - $ amt not designated by charter and corp can assign stated
value per share. Dividends determined by board of directors.
Pref stock dividends usually % of par or stated value. Cum or non cum and may be partially/fully/non participating. Unpaid divi mustd be paid in full b4 any
distribution to c/s. dividends in arrears are not liab but amts must be disclosed.
Share issue costs reduce net proceeds from selling shares, resulting in a lower amt of APIC.( reg fee, commissions, printing costs, legal/acct fees, promotion)
Company may reacq shares to support mrkt price, increase EPS, issue as divi, merger and acq, takeover attempt.