How/Why is tax basis depreciation greater than book depreciation? Why is this considered a deferred tax...
How/Why is tax basis depreciation greater than book depreciation? Why is this considered a deferred tax liability?
Homework Answers
Tax basis depreciation is calculated as per the rules and regulation of Internal Revenue Service (IRS) and is required to be reported in Income Tax Returns. Internal Revenue Service (IRS) specifies the useful life of assets and allows additional depreciation to the tax payers while filing the income tax returns of the organisation however this benefit is not available for book depreciation. Therefore, the tax basis depreciation greater than book depreciation and the main reason of this difference is timing and additional accelerated cost recovery method (like MACRS) of recording the depreciation on cost of assets in company’s financial statement and income tax return.
This difference generally known as temporary difference due to which tax liability, on the difference amount of depreciation as per tax laws and financial statements, will be deferred and company has to pay the tax on the same amount over the remaining useful life of assets.
Higher depreciation as per tax law results in lower income and lower tax accordingly but this will be adjusted in remaining useful life of assets. Therefore, it should be recorded as deferred tax liability in financial statements of the organization.
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How/Why is tax basis depreciation greater than book
depreciation? Why is this considered a deferred tax...
When income tax expense for a period is greater than income tax payable the difference will...
When income tax expense for a period is greater than income tax payable the difference will be reported how and on which financial statement ? A Deferred tax asset and Statement of Cash Flows B Deferred tax asset and Balance Sheet c Deferred tax liability and Statement of Cash Flows Deferred tax liability and Balance Sheet
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Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries, deferred tax liability) Assume that the parent company acquires its subsidiary by exchanging 118,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $30 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their...
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