For Beard Papas, when are deferred tax assets and liabilities recognized?
Beard_Papas Franchise · 2025 FDDAnswer from 2025 FDD Document
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards, using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is provided for to reduce the deferred tax assets to a level which, more likely than not, will be realized.
Source: Item 23 — RECEIPTS (FDD pages 58–275)
What This Means (2025 FDD)
According to Beard Papas's 2025 Franchise Disclosure Document, the company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the anticipated future tax implications resulting from differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This also includes operating loss and tax credit carryforwards. These calculations use the enacted tax rates expected to be in effect during the years when these differences are expected to be recovered or settled.
Furthermore, the FDD states that any changes in tax rates will affect deferred tax assets and liabilities. The effect of these changes is recognized in earnings during the period that includes the enactment date of the new tax rates. This means that if tax laws change, Beard Papas will adjust its deferred tax assets and liabilities accordingly, and these adjustments will be reflected in the company's earnings for that period.
To ensure that deferred tax assets are not overstated, Beard Papas establishes a valuation allowance. This allowance reduces the deferred tax assets to a level that is more likely than not to be realized. This implies that Beard Papas is conservative in its approach, only recognizing deferred tax assets to the extent that they are reasonably certain to provide a future tax benefit.