What is the policy of Fly To Fit regarding reserving for deferred tax assets?
Fly_To_Fit Franchise · 2024 FDDAnswer from 2024 FDD Document
enue and will be recognized over the term of the franchise agreement.
Income Taxes
The Company applies ASC 740 Income Taxes ("ASC 740"). Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any and the change during the period in deferred tax assets and liabilities.
Net operating losses will be carried forward to reduce taxable income in future years.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 44)
What This Means (2024 FDD)
According to Fly To Fit's 2024 Franchise Disclosure Document, the company adheres to ASC 740 Income Taxes when dealing with income taxes. Fly To Fit recognizes deferred income taxes for the future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These calculations are based on enacted tax laws and statutory tax rates applicable in the periods the differences are expected to impact taxable income. Valuation allowances are established, if needed, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities.
Fly To Fit will carry forward net operating losses to reduce taxable income in future years. However, due to uncertainty regarding the timing and valuation of any benefits associated with these net operating loss carryforwards, Fly To Fit has elected to recognize an allowance to account for them in the financial statements but has fully reserved it. Under current law, net operating losses may be carried forward indefinitely.
For a prospective franchisee, this means that Fly To Fit is taking a conservative approach by fully reserving for potential benefits from net operating loss carryforwards due to uncertainties in their realization. This approach may provide a more accurate representation of the company's financial position. Franchisees should be aware that tax laws and their interpretations can change, which could impact the actual benefits realized from net operating loss carryforwards in the future.