Term
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Definition
| is an agreement in which the employer provides employee with defined or estimated retirement benefits in exchange for current or past services. Pension benefits are not paid currently; rather they are a form of deferred compensation and are paid to retire employees, usually on periodic basis. |
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Term
| Pension plan: Defined benefit plan: |
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Definition
| The benefits that the employee receives at retirement are determined by formula. IT is the sponsor company;s responsibility to ensure that contributions to the plan are sufficient to pay benefits as they come due. |
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Term
| Pension plan: Defined contribution plan: |
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Definition
| The contributions that the sponsor company makes to the plan are determined by formula. The employees' retirement benefits are based on the amount of funds in the plan. |
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Term
| Pension plan: Accounting for defined contribution plan |
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Definition
Accounting for defined contribution plan is very simple, whereas accounting for defined benefit plans is complex. For defined contribution plan, the sponsor company makes multiple journal entries.
It is important to note that a pension plan and the sponsoring company are two separate legal entities. The pension plan accounting covered below is not concerned with the pension plan's accounting. Rather, it is concerned with how the sponsor company accounts for the plan. |
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Term
| Accounting for pension plan is concerned primarily with determining the amount of |
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Definition
1. pension expense that appears on the sponsor company's income statement. and
2. Any related pension account (asset, liability, and or other comprehensive income account) that appear on the sponsor company's balance sheet. |
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Term
| What are some of the accounting problems |
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Definition
| are primarily for defined benefit plans, are caused by necessary use of estimates and assumptions, which affect the timing and measurement of pension costs (Expense), gains and losses from investments of plan assets, and liabilities. (use specialist - actuary) |
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Term
| Characteristics of a pension plan: Written or implied |
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Definition
| A plan's provisions must be applied to both written plans and those whose existence may be implied from a well defined, although perhaps unwritten, practice of paying post retirement benefits. |
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Term
| Characteristics of a pension plan: Contributory or non contributory |
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Definition
| Employees are required to contribute to the plan if it is contributory; only the employer contributes to the plan if it is non contributory. |
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Term
| Characteristics of a pension plan: Funded or nonfunded |
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Definition
The term funded refers to the sponsor company making contributions to the pension plan.
A plan is funded when the employer makes cash contributions to the plan. The amount funded does not have to equal the pension plan expense for the period. |
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Term
| Characteristics of a pension plan: Over funded vs. underfunded |
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Definition
Applies only to defined benefit plans.
An overfunded plan has assets that exceed its liabilities, whereas an underfunded plan has liabilities that exceed its assets. |
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Term
| Types of pension plans: Non GAAP Methods: Pay-As-You-Go |
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Definition
A cash basis method of expensing pension plan payments after someone has retired. Because it is a cash basis method, it is not GAAP.
Cash basis |
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Term
| Types of pension plans: Non GAAP Methods: Terminal Funding |
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Definition
A company pays an entire pension plan liability upon retirement of an employee, generally by purchasing an annuity type insurance policy. Terminal funding is also a cash basis method and is not GAAP.
Cash basis! |
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Term
| Types of pension plans: GAAP Methods: Defined contribution plan |
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Definition
This type of plan specifies the periodic amount of contributions to the plan and the way that the contributions should be allocated to employees. The types of factors considered when calculating contributions to the plan include
1. employee length of service
2. Compensation amounts
401K - define the exact contribution every year - what ever it grows to. |
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Term
| Types of pension plans: GAAP Method: Defined benefits plan |
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Definition
This type of plan "defines the benefits to be paid to employees" at retirement. Contributions are computed using actuarial assumptions of future benefit payments based on factors such as:
1. Employees compensation levels at or near retirement.
2. the # of years of employee service
3. The number of years until the employee retires
4. The number of years that the plan expects to pay benefits after an employee retires. exp: you will receive 2/3 of your salary every month etc. |
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Term
| Accumulated benefit obligation |
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Definition
The actuarial present value of the benefits attributed by a formula based on current and past compensation levels. An ABO differs from PBO only in that the ABO includes no assumption about future compensation levels (uses current salaries)
Use CURRENT salary |
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Term
| *Projected Benefit obligation (PBO) |
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Definition
| The actuarial present value of all benefits attributed by the plan's benefit formula to employee service rendered prior to that date. PBO only uses an assumption as to future compensation levels. Use (GUESS)FUTURE salary! Amount i guess i owe you (higher salary assumption) |
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Term
| Under IFRS, the defined obligation (DBO) is defined _______ pension plan. The DBO (IFRS) and the PBO (GAAP) are calculated in a similar manner |
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Definition
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Term
| Vested Benefits definition |
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Definition
| Pension plan benefits are vested employees have earned their benefits by reason of having reached retirement age and/or having otherwise met unique pension plan requirements (e.g. are fully vested after 10 yr of service) the benefits are vested whether of not that person has actually retired, and they are not contingent on remaining in the service of the employer. Generally, pension plan documents require money to be left in the plan until retirement. |
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Term
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Definition
| is the present value of all pension benefits earned by company employees in the current year. It is provided by the actuary. The service cost component increases the projected benefit obligation. |
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Term
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Definition
| The increase in the projected benefit obligation(PBO) due to the passage of time measuring the PBO as a present value requires accrual of an interest cost on the projected benefit obligation, at rates equal to the assumed discount rates. Interest cost always increases the PBO because the Present value of any liability increases as you get closer to the due date. |
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Term
| Prior service cost: the cost of benefits based on past service granted for |
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Definition
a. service prior to the initiation of a pension plan that employees retroactively receive credit for when the plan is implemented (i.e in the timeline above, benefits based on service provided from year 1 to year 10)
b. Subsequent plan amendment, reflecting new or increased benefits, that also is applied to service already provided (i.e Yr1 - Yr20 in the timeline above)
Prior service cost increases the PBO in the period of the plan initiation or amendment and should be amortized to pension expense over the future service periods of the affected employees. |
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Term
| actuarial gains and losses |
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Definition
| are adjustments to the projected benefit obligation that arise when the actuary changes one or more of the assumptions used to calculate the PBO. Actuarial gains decrease the PBO and actuarial losses increase the PBO. |
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Term
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Definition
| Benefits are paid to pension plan participants after retirement.The payments of pension benefits reduces the projected benefit obligation and reduces plan assets. |
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Term
| Formula to calculate projected benefit obligation. |
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Definition
Beginning projected benefit obligation
+Service cost
+interest cost
+prior service cost from current period plan amendments
+actuarial losses incurred in the current period.
-Actuarial gains incurred in the current period.
-benefits paid to retirees.
=Ending projected benefit obligation |
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Term
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Definition
| are the assets, generally stocks, bonds and other investments, set aside to provide for pension benefits. Plan assets should be reported at FV. Plan assets increase each period by contributions to the pension plan (funding) and by the return on the plan assets. Plan assets decrease each period by the amount of benefits paid to retired employees. |
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Term
| Actual return on plan assets |
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Definition
| Returns on the assets held by the pension plan. Actual return on plan assets can be calculated based on the FV of plan assets at the beginning and ending of the period, adjusted for contributions and benefit payments (a squeeze) |
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Term
| Calculate ending FV of plan assets or to solve for the actual return on plan assets |
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Definition
beginning fair value of plan assets
+ contributions
+Actual return on plan assets
-benefits paid on retirees
= Ending FV of plan assets. |
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Term
| Income statement accounting |
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Definition
| Under US GAAP pension expense also known as net periodic pension cost is the increase in the projected benefit obligation during the period, offset by earnings on plan assets, and adjusted for the effects of certain smoothing mechanisms. |
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Term
| Income statement Expense formula |
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Definition
SIRAGE
current SERVICE cost
+INTEREST cost
-RETURN on plan assets
+AMORTIZATION of prior service cost.
-GAINS and Losses
+Amortization of EXISTING net obligation or net asset
= Net Periodic pension cost.
AGE - unamortized is in AOCI
General entry exp
DR.Net periodic pension cost
CR.Pension benefit liability
CR.Other comprehensive income.
pay it:
DR. Pension benefit liability (reducing liability on B/S)
CR. Cash (funding) |
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Term
| Components of "Net periodic Cost" under GAAP = SIR AGE: Current Service cost |
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Definition
| The PV of all benefits earned in the current period. In other words, the increase in the projected benefit obligation (PBO) resulting from employee services in the current period. The pension benefit formula is applied to compute a PV. The actuary provides service cost. |
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Term
| Components of "net periodic pension cost" under US GAAP = SIT AGE = Interest Cost |
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Definition
equals discount rate: The increase int he projected benefit obligation during the current period that is die to the passage of time. (similar to the recognition of interest expense)
Formula: Beg of period PBO
X discount rate = Interest cost. |
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Term
| Components of "Net periodic Pension Cost" under GAAP = Sir AGE: |
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Definition
R - US Gaap allows companies to offset pension expense by either the actual return on plan assets or the expected return on plan assets.
Actual return on plan
BEG FV + Contributions
Actual return (squeez)
- Benefit payments
___________________
ending FV |
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Term
| Components of "Net periodic Pension Cost" under GAAP = Sir AGE: Actual return on plan assets |
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Definition
| The actual return on plan assets can be calculated based on the FV plan assets and at the beg and ending of the period adjusted for contributions and benefit payments a squeez. Most companies choose not to use the actual return on plan assets in the computation of pension expense because the actual return can vary drastically from period to period, causing earnings volatility. |
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Term
| Components of "Net periodic Pension Cost" under GAAP = Sir AGE: Expected return or plan assets |
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Definition
Companies use the expected return on plan assets in the computation of pension expense in order to smooth earnings. The expected return on plan assets is calculated using the following formula
Beg FV of plan assets
X expected rate of return on plan assets
= Expected return on plan assets.
When companies use the expected return on plan assets to calculate pension expense, the diff between actual and expected return must be recognized in other comprehensive income each period and then amortized to pension expense over time with any actuarial gains or losses. |
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Term
| Components of "Net periodic Pension Cost" under GAAP = Sir AGE: Amortization of unrecognized prior service cost |
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Definition
Under us gaap in the period that a pension plan is initiated or amended, the resulting prior service cost increases the PBO and is recorded as unrecognized prior service cost in other comprehensive income. The unrecognized prior service cost in accumulated other comprehensive income is amortized to pension expense over the plan participants's remaining years of service. The amortization is calculated using the unrecognized prior period service cost balance at the beg of the period.
Formula: Beg unrecognized prior period cost / average remaining service life = Amortization of prior service cost. |
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Term
| Components of "Net periodic Pension Cost" under GAAP = Sir AGE: and losses |
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Definition
Gains and loss arise from 2 sources:
1. the diff btw the expected and actual return on plan assets when the expected return on plan assets is used to calculate pension expense, and
2. changes in actuarial assumptions (actuarial gains and losses) |
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Term
| Under us gaap entities have 2 choices when accounting for gains and losses |
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Definition
recognize gains and losses on the income statement in the period incurred
or
recognize the gains and losses in other comprehensive income in the period incurred and then amortize the unrecognized gains and losses to pension expense over time using the corridor approach. Most companies choose this option to smooth earnings. |
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Term
| What is the corridor approach |
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Definition
under the corridor approach in entity's net unrecognized gain or loss is amortized over the employees average remaining service period, if as of the beg of the year, this amount exceeds 10% of the greater of the beg of the year balance of
Market related value of plan assets - assets
2. projected benefits obligation (PBO) = Liability. |
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Term
| Components of "Net periodic Pension Cost" under GAAP = Sir AGE: Amortization of existing Net obligation or Net Asset at implementation |
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Definition
Under US GAAP an employer was required to determine the funded status of the pension plan (FV plan asset - PBO) as of the beg of the first year FASB 87 was applied. FASB 87 was effective for most large companies for fiscal years beginning after Dec 15 1986. This funded status was required to be amortized over the greater of 15 years or the average remaining job life of the company's employees.
Unamortized is in AOCI.
Projected benefit obligation
Initial unfunded obligation
/ 15 year or average employee job life (greater) |
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Term
| Pensions are Great! passkey |
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Definition
When deciding which balance (asset or liabilities) for the gains/losses component, use the "greater" of the two.
When deciding which period to amortize the existing obligation over (15 yr or avg service life use the "Greater" of the two. |
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Term
Balance sheet accounting
Pension plan contributions |
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Definition
A company's contribution to its defined pension plans increases the pension plan asset(overfunded pension plan) or decreases the pension plan liability (underfunded pension planS)
Pension benefit asset/Liability XXX
Cash XXX
Company J/E when they fund the pension. |
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Term
Balance sheet accounting
Pension plan contributions : Funded status |
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Definition
| Under US GAAP companies must report the funded status of their pension plan on the balance sheet as an asset or a liability (or both). The funded status of a pension plan is calculated using the following formula
FV of plan assets
=Funded status.
if a company has multiple defined benefit pension plans, the funded status of each plan is calculated separately in the pension footnote disclosures. |
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Term
Balance sheet accounting
Pension plan contributions : Funded status: Pension plan asset (non current) |
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Definition
| A positive funded status (FV of plan assets>PBO) indicates that the pension is overfunded. For balance sheet reporting purposes, all overfunded pension plans are aggregated and reported in total as a non current asset. overfunded - always non current |
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Term
Balance sheet accounting
Pension plan contributions : Funded status: Pension plan liability(current, noncurrent or both) |
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Definition
| A neg funded (FV of plan asset< PBO) indicates that the pension is underfunded. All underfunded pension plans are aggregated and reported as a current liability, a noncurrent liability or both, underfunded pension plans are reported as a current liability to the extent that the benefit obligation payable within the next 12 months exceeds the FV or the plan assets. underfunded |
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Term
| The beginning and ending funded status (FV plan assets - PBO) of a defined pension plan can be reconciled as follows |
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Definition
Beginning funded status (Pension benefit asset/liability)
+ Contributions
- Service Cost
- Interest Cost
+ Expected return on plan assets
- Prior service cost incurred in the current period due to plan amendment
+ Net gains incurred during the current period.
- Net losses incurred during the current period
= Ending funded status(pension benefit asset/liability) |
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Term
| Accumulated other comprehensive income |
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Definition
| US GAAP requires that changes in the funded status of a pension plan due to prior service cost and pension gains and losses be reported in other comprehensive income in the period incurred, unless the company chooses to recognize the pension gains and losses immediately on the income statement. The tax effect of these items must be recognized in other comprehensive income. |
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Term
| Prior Service Cost and Pension losses: Recognition in period incurred |
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Definition
Prior service cost and pension losses decrease the funded status of the pension plan and are recorded with the following J/E in the period incurred.
Dr. Other Comprehensive income XXX
CR. Pension benefits asset/liability XXX
A deferred tax asset must also be recognized because prior service cost and pension losses increase the benefits that will be paid to retired employees in the future. When these benefits are paid, the company will take a tax deduction for the benefit payments, decreasing future taxes. The related deferred tax benefit must be recognized in OCI as an offset to the unrecognized prior service cost or pension loss. All elements of AOCI are reported net of tax.
Journal entry to record the deferred tax asset
Dr. deferred tax asset XXX
Cr. deferred tax benefit - oci XX |
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Term
| Amortization to pension expense |
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Definition
When prior service cost, pension losses, and any remaining transition obligation are amortized, they are reclassified out of accumulated other comprehensive income and recognized as a component of pension expense.
Dr. Net periodic pension cost XXX
Cr. Other comprehensive income XXX |
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Term
| in us gaap amortization of unrecognized prior service cost is calculated |
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Definition
| by assigning an equal amount of the cost to the future periods of service of each employee at the date of amendment to the plan. |
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Term
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Definition
| the increase in the PBO(projected benefit obligation) resulting from employees services rendered during the year. |
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Term
| Footnote disclosures in the financial statements for pensions require inclusions of |
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Definition
The components of period pension costs
The amount of unrecognized prior service cost
A detailed description of the plan including employee group covered. |
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Term
| Under us gaap accumulated benefit obligation is present value of |
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Definition
| the future retirement payments attributed to the pension benefit formula to employee services rendered prior to a date, based on current and past compensation levels. |
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Term
formulas:net periodic pension cost.
interest cost
Expected return on plan asset
Amortization of prior service cost
Amortization of transition asset |
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Definition
I: Beg PBO* discount rate
R: Beg FV* Expected rate
A: prior service cost/# of remaining years
E: unrecognized net transition assets/# of remaining years. |
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Term
| Under US GAAP, unrecognized pension gains or losses are amortized |
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Definition
| over the remaining service period if, at the beg of the year, the gain or loss exceeds 10% of the greater of the beginning of the year PBO or the beginning of the year market related value of plan assets. |
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Term
| Under US GAAP unrecognized prior service cost, unrecognized transition obligations and unrecognized net gains or losses must be reported |
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Definition
| in accumulated other comprehensive income net of tax, until recognized as a component of net periodic pension cos t through amortization. |
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Term
| Under ifrs remeasurements of the defined benefit liability asset, including |
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Definition
| remeasurements from actuarial gains, are reported in other comprehensive income and are not reclassified (amortized) to income statement. |
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Term
| US GAAP interest cost included in the net pension cost recognized for a period by an employer sponsoring a defined pension plan represents |
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Definition
| the increase in the projected benefits obligation due to the passage of time. |
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Term
| Under IFRS past service cost is recognized on the income statement in the |
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Definition
| period of the plan amendment only. |
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Term
| pension plan investment assets must be reported at |
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Definition
| FV in a defined plan's financial statement. |
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Term
| Post retirement benefits other than pensions include |
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Definition
Health care insurance
life insurance
welfare benefits
legal services
Day care
all provided after retirement. |
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Term
| Accrual requirement for post retirement benefits |
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Definition
The cost of retiree health and other post retirement benefits must be accrued if
1. the obligation is attributable to employees' services already rendered
2. the employees rights accumulate or vest
3. payment is probable and
4. the amount of benefits can be reasonably estimated.
1&2 liability
3&4 contingency rules. |
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Term
| The accounting for post retirement benefits |
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Definition
| mirrors pension accounting under both IFRS and us GAAP |
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Term
| Accumulated post retirement benefit obligations(APBO) |
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Definition
The APBO is the present value of the future benefits that have vested as of the measurement date. The APBO is discounted using an assumed discount rate.
This rate should reflect returns on high quality, fixed income investments.
2. the discount rate is used to determine the APBO and EPBO and the service and interest cost components of net periodic post retirement benefit cost. |
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Term
| Expected post retirement benefit obligation |
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Definition
| The present value of all future benefits expected to be paid as of the measurement date. |
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Term
| Income statement for post retirement benefit obligation |
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Definition
1. The benefit year of service approach is used. The expected post retirement benefit obligation is attributed to each year of service in the attribution period.
The post retirement benefit obligation is accrued during the period the employee works the attribution period. generally beg at the employees date of hire and ending at full eligibility date. |
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Term
| Income statement formula for post retirement benefits |
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Definition
SIR AGE
Current service cost
Interest cost on APBO
Amortization of prior service cost
and losses
Amortization/expense transition amount (net obligation)
= Net Postretirement benefit expense/cost. |
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Term
| E - Amortization of expense of the transition obligation (PRBO) |
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Definition
Amortization of the transition obligation is the amortization of the effect of adopting SFAS 106 which was generally effective for fiscal years beginning after dec 15 1992
transition from accrual acct was done in 2 ways
1. immediate expense recognition by recording the entire obligation in one year as the effect of a change in acct principle
2. delayed recognition by using straight line amortization over the avg remaining service period of active plan participants. If this period is less than 20 years, a 20 year amortization period may be elected. |
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Term
| 2 big diff btw pension plans and post retirement benefits |
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Definition
1. option to expense
2. 20 years (min) |
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Term
| post employement benefits are paid by companies to |
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Definition
| former or inactive employees during the period after their employement and before their retirement. This is not the same as post retirement benefits |
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Term
| Types of post employment benefits |
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Definition
employer sponsored benefits:
Salary continuation
Severance benefits
continuation of other fringe benefits(insurance)
Job training
Disability related - including workers compensation |
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Term
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Definition
liability for post employment benefit are accrued if all the following conditions are met.
1. employer's obligation is attributable to services already rendered
The obligation related to rights that vest or accumulate
Payments of the compensation is probable.
The amount can be reasonably estimated
Severance exp XXX
Cr. Severance Liability XXX
Foot note disclosure is required when all four criteria are not met. |
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Term
| Deferred compensation arrangements: Post employment benefits. |
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Definition
| Pension and post retirement benefits are a form of deferred compensation. Many companies also offer separate deferred compensation arrangements that are individual employment contracts. These contracts must be accounted for individually on an accrual basis. |
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Term
| Deferred compensation arrangements: Post employment benefits. Liability recongition |
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Definition
| Deferred compensation arrangements are accounted for at the present value of the benefits expected to be provided in exchange for the employees service to date. If the terms of deferred compensation arrangement attribute all or a portion of expected future benefits to an individual year of the employees service, the cost of the benefits should be recognized in that year. If the term of the deferred compensation arrangement attribute all or a portion of expected future benefits to a period of service greater than one year, the cost of those benefits should be recognized in a systematic and rational manner over that period. |
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Term
| Compensation for future absences - sick pay: vesting and carrying over rules |
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Definition
The employers obligation to compensate employees for future absences is attributable to services already rendered by employee
The obligation related to rights that vest are not contingent on an employees future services or accumulate may be carried forward to once or more accounting periods subsequent to that which earned.
Payments of the compensation is probable
the amount can be reasonably estimated.
1&2 liability
3&4 contingency. |
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Term
| Sick pay benefits: Accrue for vesting" |
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Definition
| An employer is not required to accrue a liability for nonvesting accumulating rights to receive sick pay benefits because the lower degree of reliability of estimates of future sick pay and the cost of making and evaluating those estimates do not justify making an accrual. |
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Term
| Accounting for income taxes includes |
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Definition
| Intraperiod and interperiod tax allocation. |
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Term
| Intraperiod tax allocation |
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Definition
Intraperiod tax allocation involves apportioning the total tax provision for financial accounting purposes in a period btw the income or loss from
IDEA and Other comprehensive income PUFER
Components of stockholders equity
Retained earnings for prior period adjustments and accounting principle changes retrospective and
items of accumulated other comprehensive income.
I - is gross of tax and the remaining are net of tax. |
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Term
| Interperiod tax: objective |
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Definition
The objective of interperiod tax allocation is to recognize through the matching principle the amount of current and future tax related to events that have been recognized in financial accounting income:
Balance sheet liability = I/S
owe now + owe later = Expense
today:
DR: Tax expense
cr. Owe now/ liability
Cr. Owe later/liability.
1. current year taxes a. payable(liability) or refundable (asset)
2. Future year taxes:
a. deferred tax liability or Deferred tax asset/benefit |
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Term
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Definition
There are 2 types:
1. permanent diff: Affect "current"/not "deferred"
PD do not affect the deferred tax computation - no deferred taxes.
Temporary diff: Affect "current" and "deferred"
Temp diff affect the deferred tax computation. deferred taxes required. |
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Term
| Interperiod: Comprehensive allocation: Income tax |
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Definition
| The asset and liability sometimes referred ti as the balance sheet approach method is required by GAAP for comprehensive allocation. under comprehensive allocation interperiod tax allocation is applied to all temp diff. The asset and liab method requires that either income tax payable or a deferred tax liability asset be recorded for all tax consequences of the current period. |
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Term
| Interperiod: accounting for interperiod tax allocation |
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Definition
Total income tax expense (GAAP income tax expense) or benefit for the year is the sum of:
owe now: Current income tax exp/benefit and
owe later (net change)= expense - Deferred income tax exp/benefit.
Current income tax expense/benefit is equal to the income taxes payable or refundable for the current year as determined on the corp tax return (form 1120) for the current year
Deferred income tax exp/bene is equal to the change in deferred tax liab. asset acct on the balance sheet from the beg of the current year to the end of the current year (called the balance sheet approach" |
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Term
| Permanent diff: no deferred taxes |
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Definition
no deferred taxes: only impact current taxes/year:
examples of Perm diff:
tax exempt interest (municipal state)
Life insurance proceeds on officers key man policy
Life insurance premiums when corp is beneficiary
Certain penalties fines bribes kickbacks etc.
Non deductible portion of meal and entertainment exp.
dividends received deduction for corp
excess % depletion over cost depletion. |
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Term
| investment interest expense is limited to |
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Definition
| net taxable investment income. |
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Term
| Temp differences: deferred taxes required |
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Definition
1. financial statement income first - tax return later. = future tax liability = installment sale, contractors accounting (% vs completed), Equity method (undistributed dividends)
2. Tax return income first = financial statement income later = prepaid tax benefits (asset) = Prepaid rent, prepaid interest, prepaid royalties, the IRC uses the term prepaid GAAP uses the term unearned.
3. Financial statement expense first = Tax return expense later = Future tax benefits (assets) bad debt exp (allowance vs. direct w/o) est liability warranty exp. and start up expenses.
4. tax return expense first = Financial statement expense later = Future tax liability = Depreciation expense, amortization of franchise, and prepaid expenses (cash basis for tax) |
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Term
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Definition
future tax acct income > future financial acct income.
are anticipated future tax liability derived from situations where future taxable income will be greater than future financial acct income due to temp. diff. All deferred tax liabilities are recognized on the balance sheet. tax deductable first/financial statement expense later. F/S income first/ taxable income later. |
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Term
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Definition
| DTA arise when the amount of taxes paid in the current period exceeds the amount of income tax expense in the current period. They are anticipated future benefits derived from situations where future taxable income will be less than future financial acct income due to temp differences. gift certificate. |
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Term
| Valuation allowance (contra acct)- Deferred tax assets |
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Definition
| If it is more likely than not a likelihood of more than 50 % that part or all of the deferred asset will not be realized a valuation allowance is recognized. The net deferred tax asset should equal that portion of the deferred tax asset that based on available evidence is more likely than not to be realized. for amount not expected to be used. |
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Term
| Deferred tax assets: valuation allowance IFRS |
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Definition
| are not permitted under ifrs, instead a deferred tax asset is recognized when it is probably more likely than not that sufficient taxable profit will be available against which the temp diff can be utilized. |
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Term
| Deferred tax assets: valuation allowance IFRS |
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Definition
are not permitted under ifrs, instead a deferred tax asset is recognized when it is probably more likely than not that sufficient taxable profit will be available against which the temp diff can be utilized.
a decision to classify a transaction entity or other position in a tax return as tax income in a tax return. |
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Term
| Enacted Tax Rate: used for deferred taxes temporary diff |
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Definition
| Measurement of deferred taxes is based on the applicable tax rate. This requires using the enacted tax rate expected to apply to taxable item (temp diff) in the periods the taxable item is expected to be paid liability or realize asset. |
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Term
| Balance Sheet Presentation: Classified based upon what gave birth to it: Rule #1 |
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Definition
Under US GAAP deferred tax liability and assets should be classified and reported as a current amount and a noncurrent amount on the balance sheet
Deferred tax items should be classified based on the classification of the related asset or liability for financial reporting. |
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Term
| Balance Sheet Presentation: Classified based upon what gave birth to it: Rule #2 |
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Definition
Deferred tax items not related to an asset or liability should be classified (e.g current or noncurrent)based on the expected reversal date of the temp diff. Such items include.
Deferred tax asset related to carry forwards
organization costs expensed for GAAP financial income but deducted in later years for tax purposes
and
percentage completion method used to contract for GAAP financial income no asset or liability but completed contract method used for tax purposes. |
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Term
| Balance Sheet Presentation: Classified based upon what gave birth to it: |
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Definition
All deferred tax assets and liability classified as current must be offset netted) and presented as one amount a net current asset or net current liability
All deferred tax liabilities and assets classified as non current must be offset netted and presented as one amount a net noncurrent or net noncurrent liability. (net across not up and down. ) |
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Term
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Definition
under us tax law an operating loss of a period may be carried back or forward 2 ys and be applied as a reduction of taxable income in those periods as permitted by the tax law.
Operating Loss carrybacks = 100 % collectible (no valuation allowance)
Tax carry backs that can be used to reduce taxes due or to receive a refund for a prior period are a tax benefit (assets) and should be recognized to the extend they can be used in the period they occur. |
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Term
| Operating loss carry forward: valuation allowance may be necessary (required) |
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Definition
| If an operating loss is carried forward, the tax effects are recognized to the extent that the tax benefit is more likely than not to be realized. |
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Term
| Accounting for income tax summary: Method |
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Definition
| Asset and liability approach - balance sheet approach. |
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Term
| Accounting for income tax summary: Differnces |
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Definition
Diff btw income tax returns and GAAP financial statement fall into 2 groups.
1. Permanent: no deferred tax asset or liability is required b/c the diff will never reverse.
2. Temp: Deferred tax asset or liability must be recorded b/c the temp diff will reverse. |
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Term
| Accounting for income tax summary: Temp diff: Deferred Tax Liability and asset |
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Definition
DTL: the consequences of temp diff that will reverse in the future and create future taxes.
DTA: the consequences of temp diff that will revers in the future and create future tax benefits.
Valuation Allowance: the contra asset that is to be established to reflect that it is "more likely than not" that the deferred tax asset will not be completely realized. |
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Term
| Accounting for income tax summary: Measurement of the deferred tax |
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Definition
is based on the enacted rate. This is the tax rate expected to apply to taxable income in the future periods that the deferred tax asset or liability is expected to be paid or realized.
Tax rate change: adjusted in the period of a new tax rate (when signed into law). The new impact increase or decrease) to the deferred tax account will be reflected in income from cont. operations (IDEA) |
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Term
| Accounting for income tax summary: Classification |
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Definition
Criteria for current vs non current:
Balance sheet related: Classify according to the related asset or liability causing the temp diff.
2. non balance sheet related: Classify based upon the expected reversal or benefit period.
3. Netting/offseting:
Current (asset and liability) must be netted
Non current asset and liability from a particular jurisdiction must be netted |
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Term
| The approach used in GAAP to determine income tax expense is the |
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Definition
| asset and liability approach(sometimes referred to as the balance sheet approach). The asset and liability approach is used to squeeze out the amount of income tax expense after the amount of deferred tax assets and liabilities have been determined. |
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Term
| When ever income is recognized in a F/S before it is reported as a taxable income, a deferred tax liability should be reported even though |
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Definition
| a loss was recognized in year , on a cumulative basis the F/S have recognized income which has not yet been recognized for tax purposes. Accordingly a deferred liability will still exist at the end of the year 2 however it will be less than the deferred liability reported at the end of year 1 |
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Term
| Both extraordinary gain and ext loss would be considered temporary diff if they |
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Definition
| enter into the determination of taxable income and GAAP basis income in diff periods. |
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Term
| The reversal of the current temp diff will result in future deductible amount because a deferred tax asset represents |
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Definition
| future tax savings. These tax savings will be realized in the form of future tax deductions that will reduce the amount of future taxes owed. |
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Term
| A temp diff that decreases future taxable income results in the recognition of a |
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Definition
| deferred tax asset, which will be reported as non current under IFRS. Under IFRS all deferred tax assets DTA and deferred tax liabilities are reported as noncurrent on the balance sheet |
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