How are deferred tax assets and liabilities recognized by Checkersrallys?
Checkersrallys 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 Checkersrallys's 2025 Franchise Disclosure Document, the company adheres to ASC 740, Income Taxes, for accounting of income taxes. Deferred tax assets and liabilities are recognized based on the future tax implications resulting from differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. These assets and liabilities are measured using the enacted tax rates anticipated to be in effect when the temporary differences are expected to be settled or recovered.
Checkersrallys reduces deferred tax assets by a valuation allowance if it is deemed more likely than not that they will not be realized. The realization of these assets hinges on the company's ability to generate sufficient taxable income during the periods when the deferred tax assets can be utilized. The company has recorded a valuation allowance against deferred tax assets that are not deemed realizable under ASC 740 standards. These deferred tax assets are periodically reviewed for recoverability, and valuation allowances are adjusted as necessary to reflect current estimates.
Furthermore, Checkersrallys recognizes the impact of changes in tax rates on deferred tax assets and liabilities within the income tax expense or benefit in the period that includes the enactment date of the new tax rates. This ensures that the financial statements reflect the most current tax environment and its potential impact on the company's tax position. This approach to deferred tax assets and liabilities provides transparency into Checkersrallys's expected future tax obligations and potential benefits, which is crucial for assessing the company's financial health and stability.