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Differences, NOL, Allocation Methods, and Taxes

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1. What are the permanent and temporary differences?
2. What is NOL? Why does it occur?
3. What are the allocation methods?
4. What are the deferred tax assets and deferred tax liability?
5. What is the earnings conservatism ratio?

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Solution Summary

Your tutorial is 315 words and five references and gives a brief but clear response for you to get started on this topic. The reference discussion on the three tax allocation methods is cut and pasted for you.

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1. What are the permanent and temporary differences?

Permanent differences are those that will never reverse in future periods - it is recognized differently in GAAP versus the taxing authority. Temporary differences result from differences in the TIMING of when the deduction or income is recognize on book versus the tax return.

2. What is NOL? Why does it occur?

A net operating loss is a tax term (not a GAAP term) meaning that deductions are greater than taxable income. It occurs because deductions exceed taxable income.

3. What are the intraperiod tax allocation methods? (1. the deferred method, 2)the-asset liability method and 3) the net of tax method)

3. What are the intraperiod tax allocation methods? (1. the deferred method, 2)the-asset liability method and 3) the net of tax method)

1. The deferred method recognizes deferred taxes based on the tax rates at the time of the originating transactions and does not adjust when tax rates change. This is no longer GAAP (it was many years ago).

2. Asset-liability recognition of tax recognizes that the business will continue and the taxes due this period are not the only impact of this period's transactions. That is, some of the transactions this period will create tax events in other periods and those must be recognized for a going-concern that continues into the future. And, if enacted tax rates change, the assets and liabilities are adjusted to reflect the new amounts likely benefitting or owed.

3. The net-of-tax method recognizes deferred taxes impacts as part of the asset or liability rather than in a separate account. Income tax expense is only the taxes payable. ...

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  • MSc, University of Virginia
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