What does the asset and liability method require for Carbones Pizzeria's income taxes?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for income taxes under asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributed to temporary differences between the financial reporting basis and the respective tax basis of these assets and liabilities
Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded for carryforwards and other deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Based on its facts, the Company considered all available evidence, both positive and negative, including historical levels of taxable income, expectations, and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the company uses the asset and liability method for accounting for income taxes. This method necessitates the recognition of deferred tax assets and liabilities. These deferred items arise from temporary differences between the financial reporting basis and the tax basis of the company's assets and liabilities.
Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when these differences are either recovered or settled. If there are changes in tax rates, the effect on these deferred tax items is recognized in the income for the period that includes the date the change becomes law.
Furthermore, a valuation allowance is recorded if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Carbones Pizzeria considers all available evidence, both positive and negative, including historical taxable income, expectations, risks associated with future taxable income estimates, and tax planning strategies when assessing the need for a valuation allowance.