How are deferred tax assets and liabilities measured by Aplus?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
The Partnership and its corporate subsidiaries account for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
The determination of the provision for income taxes requires significant judgment, use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in our consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, we reassess these probabilities and record any changes through the provision for income taxes.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, the company uses the asset and liability method to account for income taxes. This means that deferred tax assets and liabilities are recognized based on the estimated future tax consequences resulting from differences between the financial statement carrying amounts of assets and liabilities and their tax bases. These deferred tax assets and liabilities are measured using the tax rates that are expected to be in effect when those temporary differences are recovered or settled.
If there is a change in tax rates, the effect on deferred tax assets and liabilities is recognized in earnings during the period that includes the date the change was enacted. Valuation allowances are established if it is necessary to reduce deferred tax assets to the amount that is more likely than not to be realized.
The determination of income taxes requires judgment, estimates, and interpretation of tax laws. Aplus assesses the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge from taxing authorities. These probabilities are reassessed when facts and circumstances change, and any changes are recorded through the provision for income taxes.