When assessing deferred tax assets for Benihana, what factors related to income are considered?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
s that a deferred tax asset or liability could be realized in a greater or lesser amount than recorded, the deferred tax asset or liability is adjusted and a corresponding
adjustment is made to the provision for income taxes in the consolidated statements of operations and comprehensive income in the period during which the determination is made.
F-11
The Company reduces its deferred tax assets by a valuation allowance if it determines that it is more likely than not that some portion or all of these tax assets will not be realized. In making this determination, the Company considers various qualitative and quantitative factors, such as:
- the level of historical taxable income;
- the projection of future taxable income over periods in which the deferred tax assets would be deductible;
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, when evaluating the realizability of deferred tax assets, Benihana considers several income-related factors. These include the level of historical taxable income and projections of future taxable income during the periods when the deferred tax assets would be deductible. These factors help Benihana determine if it is more likely than not that the company will realize the benefit of these tax assets.
In addition to income levels and projections, Benihana also considers broader factors that could impact income, such as events within the restaurant industry, the overall health of the economy, and historical trending. These qualitative and quantitative factors provide a comprehensive view of the company's financial position and its ability to utilize deferred tax assets.
Benihana also maintains a valuation allowance to reduce its deferred tax assets if it determines that some portion of these assets will likely not be realized. As of December 31, 2023, Benihana had a valuation allowance of $0.6 million related to foreign tax credits that it does not expect to utilize due to generating income in a jurisdiction with a higher income tax rate than the U.S. This indicates that Benihana's ability to utilize tax credits can be affected by the geographic distribution of its income.