How are deferred tax assets and liabilities determined by Americas Best Value Inn?
Americas_Best_Value_Inn Franchise · 2025 FDDAnswer from 2025 FDD Document
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning, and results of recent operations. At December 31, 2024 and 2023, a partial valuation allowance was recorded to reduce our deferred tax assets to an amount that is more likely than not to be realized. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 70–71)
What This Means (2025 FDD)
According to Americas Best Value Inn's 2025 Franchise Disclosure Document, the company uses the asset and liability method for accounting for income taxes. This method involves recognizing deferred tax assets and liabilities based on the expected future tax consequences of events already included in the financial statements. These assets and liabilities are determined by calculating the differences between the financial statement and tax bases of assets and liabilities, using the enacted tax rates expected to be in effect when these differences reverse. Any changes in tax rates will impact deferred tax assets and liabilities and are recognized in the income for the period that includes the enactment date.
Americas Best Value Inn recognizes deferred tax assets only to the extent that they believe the realization of these assets is more likely than not. This determination involves considering all available positive and negative evidence, such as future reversals of taxable temporary differences, projected future taxable income, tax-planning strategies, and recent operational results. A partial valuation allowance may be recorded to reduce deferred tax assets to an amount that is more likely to be realized. If the company later determines that it can realize deferred tax assets in excess of their net recorded amount, an adjustment is made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
For a prospective Americas Best Value Inn franchisee, understanding these accounting practices is crucial for interpreting the financial statements provided in the FDD. It's important to recognize that deferred tax assets are not guaranteed income, and their realization depends on future profitability and tax law. The valuation allowance indicates the portion of deferred tax assets that the company does not expect to realize. Franchisees should consult with a financial advisor to fully understand the implications of these deferred tax items and how they might affect the company's future financial performance.