How does Benihana recognize deferred tax assets and liabilities?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
dgments and uncertainties may result in materially different amounts being reported under
Our significant accounting estimates are discussed in additional detail in Note 2 to our consolidated financial statements. We base our estimates on historical experience and various assumptions that we believe to be reasonable under the circumstances and we evaluate those estimates on an ongoing basis. Actual results may differ from these
estimates under different assumptions or conditions. We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below: Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized.
In addition, our income tax returns are periodically audited by federal, state and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions taken and the allocation of income amongst various tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and record a related liability. We adjust our liability for unrecog
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of its assets and liabilities. These deferred tax assets and liabilities are measured using current enacted rates expected to apply to taxable income in the years in which the company expects the temporary differences to reverse. This approach aligns with standard accounting practices, ensuring that tax implications are recognized in the periods they are expected to occur, rather than when the cash transaction takes place.
Benihana routinely evaluates the likelihood of realizing the benefit of its deferred tax assets. If, based on all available evidence, the company determines that some portion of the tax benefit will not be realized, it may record a valuation allowance. As of December 31, 2023, Benihana had a valuation allowance of $0.6 million, which relates to foreign tax credits they do not expect to utilize due to generating income in a jurisdiction with a higher income tax rate than the U.S. This valuation allowance reduces the deferred tax asset to the amount that is more likely than not to be realized.
Furthermore, Benihana's income tax returns are periodically audited by federal, state, and foreign tax authorities. These audits include questions regarding their tax filing positions, including the timing and amount of deductions taken and the allocation of income amongst various tax jurisdictions. Benihana evaluates its exposures associated with its various tax filing positions and records a related liability. They adjust their liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax provision is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available. This process requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and particular facts and circumstances.