Favorited Content Show
Publication date: 30 Oct 2021 us Income taxes guide 3.2 A temporary difference is defined in ASC 740-10-20. ASC 740-10-20 Temporary Difference - A difference between the tax basis of an asset or liability computed pursuant to the requirements in Subtopic 740-10 for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Paragraph 740-10-25-20 cites eight examples of temporary differences. Some temporary differences cannot be identified with a particular asset or liability for financial reporting (see ASC 740-10-05-10 and ASC 740-10-25-24 through 25-25), but those temporary differences do meet both of the following conditions:
As noted in the definition, ASC 740-10-25-20 cites eight examples of temporary differences. Importantly, those examples are not intended to be all inclusive. ASC 740-10-25-20 An assumption inherent in an entity’s statement of financial position prepared in accordance with generally accepted accounting principles (GAAP) is that the reported amounts of assets and liabilities will be recovered and settled, respectively. Based on that assumption, a difference between the tax basis of an asset or a liability and its reported amount in the statement of financial position will result in taxable or deductible amounts in some future year(s) when the reported amounts of assets are recovered and the reported amounts of liabilities are settled. Examples include the following:
Other events not described in ASC 740-10-25-20 may give rise to temporary differences. Whatever the event or circumstance, a temporary difference will arise when a basis difference is expected to result in a taxable or deductible amount when the reported amount of an asset or liability is recovered or settled, respectively. ASC 740-10-25-23 describes taxable and deductible differences. ASC 740-10-25-23 Temporary differences that will result in taxable amounts in future years when the related asset or liability is recovered or settled are often referred to as taxable temporary differences (the examples in paragraph 740-10-25-20(a); (d); and (e) are taxable temporary differences). Likewise, temporary differences that will result in deductible amounts in future years are often referred to as deductible temporary differences (the examples in paragraph 740-10-25-20(b); (c); (f); and (g) are deductible temporary differences). Business combinations (the example in paragraph 740-10-25-20(h)) may give rise to both taxable and deductible temporary differences. The financial statement reported amount of an asset or liability and its settlement or recovery is based on US GAAP. The tax basis of an asset or liability and the timing of its inclusion in taxable income is based on the laws and regulations of the relevant tax jurisdiction of each respective taxpaying component of the consolidated reporting entity (e.g., US federal, US state, non-US jurisdictions). For financial accounting purposes, the tax bases of assets and liabilities are based on amounts that meet the more-likely-than-not recognition threshold under ASC 740-10-25-5 and are measured pursuant to the measurement requirements of ASC 740-10-30-7. A tax basis computed pursuant to that recognition and measurement model may be different from a tax basis computed for and reported on a filed or expected-to-be-filed tax return. Therefore, adjustments from “as filed” amounts may be necessary in order to properly determine deferred taxes. There are also certain circumstances when the deferred taxes recognized for US GAAP differ from those recognized for statutory reporting purposes. Question TX 3-1 addresses valuation allowance considerations when there is a difference in deferred taxes recorded between US GAAP and statutory financial statements. Question TX 3-1 PwC response No. If the financial statements being presented are US GAAP financial statements, the reporting entity should assess the need for a valuation allowance based on the US GAAP deferred taxes. As such, the deferred tax liability that exists for US GAAP should be considered as a potential source of taxable income that could realize existing deferred tax assets. PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Please ensure Your recent searchesSuggested termsSuggested guidance
Warning 2{{isCompleteProfile ? "Setup your profile before Sign In" : "Profile"}}{{editProfile.email}} First name* {{validation.firstName.errorMessage}} Last name* {{validation.lastName.errorMessage}} Country or region* Required field Functional role* Required field Company* Company name must be at least two characters long Newsletter (optional) Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Terms of Compliance* By providing your details and checking the box, you acknowledge you have read the Privacy Statement and Terms and Conditions (including the sections in each related to Registered Users).* Required field The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. Please reach out to if you need any assistance modifying these fields. Site and content preferencesYou can set the default content filter to expand search across territories. Site and content preferences (continued)Sharing your preferences is optional, but it will help us personalize your site experience. ✕ Welcome to Viewpoint, the new platform that replaces Inform. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. Viewpoint allows you to save up to 25 favorites.Consider removing one of your current favorites in order to to add a new one. Are you sure you would like to remove this page from your list?Please Sign in to set this content as a favorite.✕ Hello and welcome to ViewpointYour go-to resource for timely and relevant accounting, auditing, reporting and business insights. Follow along as we demonstrate how to use the site Before we start.Choose your preferred language below. Your browser does not support the video tag. Back to the Original document This view is read only. To access this content, click on "Go to content" Which of the following will not give rise to a temporary difference?Receipt on a nontaxable government grant will not give rise to a taxable temporary difference.
Which of the following gives rise to temporary difference for taxation?Revaluations of non-current assets
While the carrying amount of the asset has increased, the tax base of the asset remains the same and so a temporary difference arises.
Which of the following is an example of a temporary tax difference?Rent received in advance: any difference between the carrying amount and tax base is a temporary difference that will reverse in future.
Which of the following is an example of a temporary difference which would result in a deferred tax liability?Theoretically, goodwill gives rise to a temporary difference that would result in a deferred tax liability as it is an asset with a carrying amount within the group financial statements but will have a nil tax base. However, IAS 12 specifically excludes a deferred tax liability being recognised in respect of goodwill.
|