1 / 7

COMPUTING INCOME TAX EXPENSE

COMPUTING INCOME TAX EXPENSE. A SIX STEP PROGRAM. STEP 1. IDENTIFY TEMPORARY DIFFERENCES IDENTIFY PERMANENT DIFFERENCES. STEP 2. COMPUTE TAXES PAYABLE DETERMINE GAAP BASED INCOME BEFORE TAXES ADD/SUBTRACT PERMANENT DIFFERENCES

celine
Download Presentation

COMPUTING INCOME TAX EXPENSE

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. COMPUTING INCOME TAX EXPENSE A SIX STEP PROGRAM

  2. STEP 1 • IDENTIFY TEMPORARY DIFFERENCES • IDENTIFY PERMANENT DIFFERENCES

  3. STEP 2 • COMPUTE TAXES PAYABLE • DETERMINE GAAP BASED INCOME BEFORE TAXES • ADD/SUBTRACT PERMANENT DIFFERENCES • ADD/SUBTRACT NET ORIGINATING AND/OR REVERSING TEMPORARY DIFFERENCES FOR THE CURRENT PERIOD • APPLY APPROPRIATE RATE/CREDITS • TAXES PAYABLE=CURRENT PORTION

  4. STEP 3 • QUANTIFY UNREVERSED TEMPORARY DIFFERENCES • COMPUTE BOOK VALUE OF RELATED ASSETS/LIABILITIES • COMPUTE TAX BASIS OF RELATED ASSETS/LIABILITIES • SUBTRACT TAX BASIS FROM BOOK VALUE

  5. STEP 4 • CLASSIFY REVERSING DIFFERENCES • TAXABLE • WHEN REVERSED-TAXABLE INCOME IS GREATER THAN GAAP INCOME • DEDUCTIBLE • WHEN REVERSED-TAXABLE INCOME IS LESS THAN GAAP INCOME • DETERMINE BALANCE SHEET CLASSIFICATION

  6. STEP 5 • COMPUTE INCOME TAX EFFECT OF REVERSING DIFFERENCE • USE ENACTED TAX RATES • TAXABLE DIFFERENCES CREATE DEFERRED TAX LIABILITIES • DEDUCTIBLE DIFFERENCES CREATE DEFERRED TAX ASSETS • CONSIDER NEED FOR VALUATION ALLOWANCE • APPLY “MORE LIKELY THAN NOT” TEST

  7. STEP 6 • PREPARE ADJUSTING JOURNAL ENTRY • RECORD INCREASE/DECREASE IN DEFERRED TAX ASSETS/LIABILITIES • RECORD DEFERRED TAX EXPENSE (PLUG) • RECORD CURRENT TAX EXPENSE (TAXES PAYABLE)

More Related