What is an ASC 740?

Asked By: Yili Cabezos | Last Updated: 25th June, 2020
Category: personal finance personal taxes
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What is ASC 740? ASC 740 governs accounting for income taxes and requires businesses to analyze and disclose income tax risks. This Financial Accounting Standards Board topic establishes standards of financial accounting and reporting for the effect of income taxes on a company's financial results.

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Besides, what is ASC 740 fin48?

FIN 48 (mostly codified at ASC 740-10) is an official interpretation of United States accounting rules that requires businesses to analyze and disclose income tax risks. It was effective in 2007 for publicly traded entities, and is now effective for all entities adhering to US GAAP.

Likewise, does ASC 740 apply to partnerships? ASC 740 applies only to business entities subject to income taxes. It does not apply to a franchise tax to the extent it is based on capital and there is no additional tax based on income. If there is an additional tax based on income, that excess is considered an income tax and is subject to ASC 740.

Also to know, who does ASC 740 apply to?

The issue of whether a tax is an income tax is discussed in the Income Taxes Topic (Topic 740) and applies to all entities—both public and nonpublic—whether or not they are pass-through entities or not-for-profit entities.

What is a tax provision?

A provision for income taxes is the estimated amount that a business or individual taxpayer expects to pay in income taxes for the current year. The amount of this provision is derived by adjusting the reported net income of a business with a variety of permanent differences and temporary differences.

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What does ASC stand for in accounting?

FASB Accounting Standards Codification

What creates deferred tax?

Deferred-tax assets are created when a company's recorded income tax (what it reports in its income statement) is lower than that paid to the tax authority. It's usually a good thing to find on a balance sheet, because the company could receive a future tax benefit from it.

What are uncertain tax positions?

Uncertain Tax Positions. An UTP is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return by the company. The characterization of income or a decision to exclude reporting taxable income in a tax return (i.e. deferred revenue)

What do you mean by GAAP?

generally accepted accounting principles

What are unrecognized tax benefits?

An “unrecognized tax benefit” is the difference between a tax position that a company takes, or expects to take, on its income tax return and the benefit it recognizes on its financial statements.

What is a discrete tax item?

Discrete items include significant items that are unusual or that occur infrequently. Determining which items are unusual or infrequent often requires a significant degree of judgment.

Is Deferred tax an asset or liability?

A deferred tax asset is an item on the balance sheet that results from overpayment or advance payment of taxes. It is the opposite of a deferred tax liability, which represents income taxes owed.

Are expenses liabilities?

An expense is the cost of operations that a company incurs to generate revenue. Unlike assets and liabilities, expenses are related to revenue, and both are listed on a company's income statement. Expenses are the costs of a company's operation, while liabilities are the obligations and debts a company owes.

What are some examples of a deferred tax asset?

Deferred Tax Asset Examples
  • # 1 – Business Loss.
  • #2 – Differences in Depreciation Method in Accounting and Tax Purpose.
  • #3 – Differences in Depreciation Rate in Accounting and Tax Purpose.
  • #4 – Expenses.
  • #5 – Revenues.
  • #6 – Warranties.
  • #7 – Bad Debts.

Are deferred tax assets current or noncurrent?

Generally, the classification of a deferred tax account as current or noncurrent hinges on the classification of the asset or liability that gave rise to it. Any deferred tax account not arising from a specific asset or liability is classified as current or noncurrent based on its expected reversal date.

Are taxes liabilities or expenses?

What Is a Tax Expense? A tax expense is a liability owed to federal, state/provincial, and/or municipal governments within a given period, typically over the course of a year.

What is deferred tax liability?

Deferred tax liability is a tax that is assessed or is due for the current period but has not yet been paid. A deferred tax liability records the fact the company will, in the future, pay more income tax because of a transaction that took place during the current period, such as an installment sale receivable.

What is current tax and deferred tax?

4.3 Tax expense (tax saving) is the aggregate of current tax and deferred tax charged or credited to the statement of profit and loss for the period. 4.4 Current tax is the amount of income tax determined to be payable (recoverable) in respect of the taxable income (tax loss) for a period.

What is a full valuation allowance?

A valuation allowance is a reserve that is used to offset the amount of a deferred tax asset. The amount of the allowance is based on that portion of the tax asset for which it is more likely than not that a tax benefit will not be realized by the reporting entity.

How do you show deferred tax assets on a balance sheet?

It is shown under the head of Non- Current Assets in the balance sheet. It is shown under the head of Non- Current Liability in the balance sheet. It is important to mention that both the deferred tax asset and deferred tax liability are created for the temporary differences only.

What is an intra entity transfer?

[1] Intra-Entity Transfers of Assets Other Than Inventory. [2] The ASC's Master Glossary defines the term intra-entity as: “Within the reporting entity. This could be transactions or other activity between subsidiaries of the reporting entity, or between subsidiaries and the parent of the reporting entity.