How does Checkersrallys measure deferred tax assets and liabilities?
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. This standard employs an asset and liability method, which means Checkersrallys recognizes deferred tax assets and liabilities based on the anticipated future tax implications resulting from differences between the carrying amounts of existing assets and liabilities in the financial statements and their corresponding tax bases. These deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when these temporary differences are expected to be settled.
Checkersrallys must reduce deferred tax assets by a valuation allowance if it is deemed more likely than not that these assets will not be realized. The realization of these assets hinges on Checkersrallys generating sufficient taxable income during the periods when the deferred tax assets can be utilized. Consequently, Checkersrallys records a valuation allowance against deferred tax assets that do not meet the standard for realizability. The recoverability of deferred tax assets is regularly assessed, and valuation allowances are adjusted as necessary to reflect current conditions.
Furthermore, as mandated by ASC 740, Income Taxes, any changes in tax rates will affect deferred tax assets and liabilities. Checkersrallys recognizes the impact of these changes as part of the income tax expense or benefit in the period that includes the date the tax rate change was enacted. This ensures that the financial statements accurately reflect the current tax environment and its potential impact on Checkersrallys's financial position. Prospective franchisees should understand that these accounting practices can significantly influence the reported profitability and tax obligations of Checkersrallys and its franchisees.