Question

Chris Green, CPA, is auditing Rayne Co.'s 2016 financial statements. For the year ended December 31, 2016, Rayne is applying GAAP for income taxes. Rayne's controller, Dunn, has prepared a schedule of all differences between financial statement and income tax return income. Dunn believes that as a result of pending legislation, the enacted tax rate at December 31, 2016, will be increased for 2017. Dunn is uncertain which differences to include and which rates to apply in computing deferred taxes. Dunn has requested an overview of GAAP from Green.

Required:

Prepare a brief memo to Dunn from Green that identifies the objectives of accounting for income taxes, defines temporary differences, explains how to measure deferred tax assets and liabilities, and explains how to measure deferred income tax expense or benefit

Answer 1

Answer

To ; Dunn

From ; Green

Subject ; How to measure differed tax asset / liability

source ; Accounting standard available

Accounting profits show in the companys books / financial statement

differs with the it profits one such reason for same is timing difference arises due to difference

in the rate of depreciation method of depreciation expences allowed for normal business but

not allowed as per income tax provision are concerned

the company has to calculate deferred

tax asset / liability

Deffered tax assets indicates that you will accumulated future deduction ....

in other words a positive cash flow... while deffered tax liabilites indicates future cash flow

for corpration deffered tax liabilites are netted against defferd tax assets and reported on

fix balance sheet

in easy way , deffered tax liability is a provision for future taxation