What accounting standard does Checkersrallys use for income taxes, and what does it require the company to recognize?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
Income Taxes
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 Checkersrallys's 2025 Franchise Disclosure Document, the company accounts for income taxes based upon the provisions of ASC 740, Income Taxes. This standard employs an asset and liability method, which means Checkersrallys recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years when those temporary differences are expected to be recovered or settled.
ASC 740 requires Checkersrallys to reduce deferred tax assets by a valuation allowance if it is more likely than not that they will not be realized. The realization of deferred tax assets depends on Checkersrallys 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.
Furthermore, Checkersrallys reviews the deferred tax assets periodically for recoverability, and valuation allowances are adjusted as necessary. Under ASC 740, 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. This ensures that the financial statements reflect the most current tax laws and their impact on the company's financial position.