Under FASB ASC 740, how are deferred tax assets and liabilities measured by Exit?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for income taxes using FASB ASC 740, Income Taxes ("FASB ASC 740"). Under FASB ASC 740, 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. Under FASB ASC 740, the effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records valuation allowances against deferred tax assets as deemed necessary.
As of December 31, 2024, the Company had a valuation allowance of $1,314,680 against deferred tax assets related to net operating losses. During the year ended December 31, 2024, the valuation allowance increased by $67,157, due to the realizability of net operating loss carryforwards recorded by Ah$um America, Inc. Management will continue to assess the need for a valuation allowance in future periods based on the Company's operating results and other factors.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company adheres to FASB ASC 740, Income Taxes, for accounting of income taxes. Under this standard, Exit recognizes deferred tax assets and liabilities based on the future tax implications resulting from differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases. These deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when these temporary differences are expected to be recovered or settled.
Furthermore, Exit recognizes the impact of any changes in tax rates on deferred tax assets and liabilities within the income for the period that includes the enactment date of the change. Exit also records valuation allowances against deferred tax assets if it is deemed necessary.
As of December 31, 2024, Exit had a valuation allowance of $1,314,680 against deferred tax assets related to net operating losses. During the year ended December 31, 2024, the valuation allowance increased by $67,157, due to the realizability of net operating loss carryforwards recorded by Ah$um America, Inc. Management will continue to assess the need for a valuation allowance in future periods based on the Company's operating results and other factors.