When is the effect of a change in tax rates recognized in income 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.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the company adheres to the asset and liability method for accounting for income taxes. This method necessitates the recognition of deferred tax assets and liabilities, which account for the future tax implications arising from temporary differences between the financial reporting basis and the tax basis of assets and liabilities. These deferred tax assets and liabilities are gauged using the tax rates that are expected to be in effect when these differences are resolved.
Specifically, Carbones Pizzeria recognizes the impact of any changes in tax rates on these deferred tax assets and liabilities within the income statement during the reporting period that includes the date when the change in tax rates was officially enacted. This means that if a new tax law is passed that alters tax rates, the financial impact of this change on the company's deferred tax positions will be reflected in the income statement for that period.
For a prospective franchisee, this accounting practice means that Carbones Pizzeria's financial statements will promptly reflect any changes in tax laws, providing a more up-to-date view of the company's financial position. This immediate recognition can affect the net income reported by the company and, consequently, could influence various financial metrics that franchisees might consider when evaluating the franchise's performance and stability.