Under what accounting standard does Checkersrallys account for income taxes?
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 a
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 uses an asset and liability method, which means Checkersrallys recognizes deferred tax assets and liabilities for the expected future tax consequences of differences between the financial statement carrying amounts of assets and liabilities and their tax bases. These deferred tax 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.
Deferred tax assets are subject to a valuation allowance if it is deemed more likely than not that they will not be realized. This realization depends on Checkersrallys generating sufficient taxable income in the future when these assets can be used. Checkersrallys has recorded a valuation allowance against deferred tax assets that do not meet the standard for realizability. The recoverability of these deferred tax assets is periodically reviewed, and valuation allowances are adjusted as necessary.
For a prospective franchisee, understanding Checkersrallys's accounting practices is crucial for interpreting their financial statements. The use of ASC 740 affects how income taxes are reported and can impact the perceived profitability and financial health of the company. Franchisees should be aware of how deferred tax assets and liabilities, as well as valuation allowances, can influence the company's financial position and future tax obligations. This information is vital for making informed investment decisions and assessing the overall financial stability of Checkersrallys.