How does Checkers measure deferred tax assets and liabilities?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for income taxes based upon the provisions of ASC 740, Income Taxes. Under the asset and liability method required by ASC 740, Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets must be reduced by a valuation allowance when it becomes more likely than not that they will not be realized. Realization of the deferred tax assets is dependent on generating sufficient taxable income in the periods when the deferred tax assets are available to be utilized. The Company has recorded a valuation allowance against the deferred tax assets that are not realizable under this standard. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are adjusted as necessary. Under ASC 740, Income Taxes, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense or benefit in the period that includes the enactment date.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company adheres to ASC 740, Income Taxes, for accounting of income taxes. Checkers recognizes deferred tax assets and liabilities based on the future tax implications resulting from differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. These deferred tax assets and liabilities are measured using the tax rates expected to be in effect when the temporary differences are recovered or settled.
Deferred tax assets are subject to a valuation allowance, which reduces their value if it is deemed more likely than not that they will not be realized. The realization of these assets depends on Checkers generating sufficient taxable income during the periods when the deferred tax assets can be utilized. Consequently, Checkers has recorded a valuation allowance against deferred tax assets that are not considered realizable under this standard. The recoverability of deferred tax assets is periodically reviewed, and valuation allowances are adjusted as necessary.
Furthermore, any changes in tax rates can impact deferred tax assets and liabilities. Under ASC 740, the effect of a change in tax rates is recognized in income tax expense or benefit during the period that includes the enactment date. This ensures that the financial statements reflect the most current tax environment and its potential impact on Checkers' financial position. Prospective franchisees should be aware of these accounting practices, as they can influence the reported profitability and tax obligations of Checkers and its franchisees.