How are deferred tax assets and liabilities measured for Carbones Pizzeria?
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 accounts for income taxes using the asset and liability method. This method necessitates the recognition of deferred tax assets and liabilities, which are based on the expected future tax outcomes resulting from temporary differences between the financial reporting basis and the tax basis of the company's assets and liabilities. These temporary differences can arise from items such as allowances for doubtful receivables, accrued liabilities, depreciation, and net operating loss carryforwards.
Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when these differences are recovered or settled. This means Carbones Pizzeria estimates what the tax rates will be in future years and uses those rates to calculate the value of these deferred tax items. If there is a change in tax rates, the effect on deferred tax assets and liabilities is recognized in the income for the period that includes the date the new tax rates are enacted.
Furthermore, Carbones Pizzeria records a valuation allowance for carryforwards and other deferred tax assets if it is more likely than not that some or all of these assets will not be realized. In assessing the need for a valuation allowance, the company considers all available evidence, both positive and negative, including historical levels of taxable income, expectations, risks associated with estimates of future taxable income, and ongoing tax planning strategies. This ensures that the deferred tax assets are only recognized to the extent that they are expected to be used in the future.
For a prospective franchisee, understanding these accounting policies is crucial as it reflects how Carbones Pizzeria manages its financial reporting and tax obligations. While the financial statements included in the FDD are unaudited, reviewing these policies can provide insight into the company's financial health and its approach to tax planning. It is important to note that the financial statements as of and for the 4-month period February 28, 2025, are prepared without an audit, and prospective franchisees should be aware that no certified public accountant has audited these figures or expressed an opinion on their contents and form.