ASC 740 Part 2: Practical Application for Income Taxes Based on Income

This course is Part 2 in our evaluation of ASC 740.

ASC 740 deals with taxes based on income. There are multiple concepts to examine when discussing ASC 740. In this course we will review concepts such as valuation allowances, changes in tax rates, changes in entity tax status, evaluating income tax accounting for financial instruments and business combinations, and accounting for uncertainty in income taxes.

In general, when a tax is based on income, most items that enter into pretax accounting income enter into taxable income in the same year, and vice versa. Some events, however, are recognized for book purposes and tax purposes in different years. Over time, as these differences reverse, they eventually offset each other. The tax effects of these differences, referred to as deferred taxes, should be accounted for in the intervening periods.

Accounting for income taxes under ASC 740 requires a disciplined approach to recognizing, measuring, and disclosing the tax consequences of transactions and events recognized in the financial statements.

The program will address considerations around valuation allowances, focusing on the weight of positive and negative evidence in determining the realizability of deferred tax assets. Participants will also evaluate uncertain tax positions under the two-step recognition and measurement model, along with intra-period tax allocation complexities for continuing operations, discontinued operations, and other comprehensive income.

Topics Covered

• Valuation allowances and sources of taxable income
• Changes in tax laws and rates
• Changes of tax status in entity
• Income tax accounting for financial instruments
• Income tax accounting for business combinations
• Intra-period tax allocations
• Accounting for uncertainty in income tax

Learning Objectives

• Discover the concept of valuation allowances and sources of taxable income
• Identify when there is a change in valuation allowance
• Identify changes in tax laws and rates
• Recognize how to address changes of tax status in entity
• Identify income tax accounting for financial instruments
• Identify income tax accounting for business combinations
• Explore intra-period tax allocations
• Recognize the accounting for uncertainty in income tax

Level
Basic

Instructional Method
Group: Internet-based

NASBA Field of Study
Accounting (1 hour), Auditing (1 hour)

Program Prerequisites
None

Advance Preparation
None