The paper 'Income Tax Evaluation' is a perfect example of a Finance and Accounting Assignment. Nowadays, firms are required to fully understand the nature of income taxes they are expected to pay to the government and all the elements involved. These firms are expected to comprehend the different perspectives of income taxes and how they should be paid to the government while still conforming to the different stipulations set forth by such important agencies like the IRS. The process of filing for income tax returns is dependent on numerous accounting items taking into consideration that the amounts presented within the income statement as tax expenses are, in most cases totally different from the actual amounts firms pay to the governmental agencies.
The process of recording and disclosing the income taxes entails lots of accounting items that should be properly defined and fairly-known to the finance personnel within a department. Some of the crucial accounting items are discussed as follows; income tax payable; is a form of account positioned within the current liabilities part of an entity’ s statement of financial position. It usually entails the amount in taxes that a firm is obligated to pay to the government on an annual basis and also, it is computed using the underlying tax laws of the entity’ s localhost country.
Income tax expense refers to the expense that an entity is able to recognize within a given accounting timeframe that is related to government tax item that is imposed on its underlying taxable profits. In most occurrences, it is established that the amounts computed as income tax expense that is recognized on an annual basis will not likely match up with the amounts presented as standard income tax rates that are imposed on business income.
This is attributed to the fact that there exist a great number of differences that can be noted between reportable amounts of income under both the US GAAP and IFRS accounting standards with the reportable amount of income that should be disclosed within the government tax codes. A deferred tax liability represents an improvement in the amounts shown as payable taxes in a near future and this is highly related to the level of temporary differences in taxes that emanates from the end of each operational financial period.
In contrast, deferred tax assets portray a notable improvement in the amount of possible refundable taxes in the near future that emanates from the deductible temporal differences existing at the very end of each operational period. Another important accounting item that should be taken into consideration is the deferred income tax that is presented as a liability, which needs to be recorded within the statement of financial position, and that emanates from the income that has been earned already within a given accounting period. In order to comprehend these accounting items effectively and also show how they affect the computation of tax payable; then the paper takes a closer look at a real-life scenario of a company. Tallow Co.
Case Scenario At the end of 2014, Tallow Co, which is a Dubai-based entity sought to expand its operations internationally into such profitable markets as the United States of America. Recently, the sitting Managing Director has continued to receive intensive complaints, especially from the accounting section that they are indeed facing troubles on presenting and recording increases in the underlying data within their different financial statements as well as the best way to apply such accounting items s deferred assets and liabilities within their respective accounting books due to the differences in accounting treatment applied in the US as well as the growing tax departments.
By the end of the financial operational year, the CEO took the initiative of employing a rather expert in the field that would help solve the issues at hand.
The expert has proven effective in other related tasks by companies operating within the region that have also sought to expand into the US where GAAP as opposed to IFRS is preferred.