How are deferred tax asset and liability account balances determined by Ledgers?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
For income tax purposes, the Company has elected to be taxed as a C Corporation by filing an Entity Classification Election (Form 8832). The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is established when management estimates that it is more likely than not that deferred tax assets will not be realized. Realization of deferred tax assets is dependent upon future pretax earnings, the reversal of temporary differences between book and tax income, and the expected tax rates in future periods. The temporary difference relates to net operating losses. The deferred tax asset represents the future tax benefit of those differences.
The determination of current and deferred income taxes is a critical accounting estimate which is based on complex analyses of many factors including interpretation of federal and state income tax laws; the evaluation of uncertain tax positions; differences between the tax and financial reporting bases of assets and liabilities (temporary differences); estimates of amounts due or owed, such as the timing of reversal of temporary differences; and current financial accounting standards.
Additionally, there can be no assurance that estimates and interpretations used in determining income tax liabilities will not be challenged by federal and state taxing authorities. Actual results could differ significantly from the estimates and tax law interpretations used in determining the current and deferred income tax benefits.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to Ledgers' 2025 Franchise Disclosure Document, the company, which is taxed as a C Corporation, uses the asset and liability method to account for income taxes. Deferred tax asset and liability account balances are determined by temporary differences between the financial statements and tax bases of assets and liabilities. These differences are calculated using enacted tax rates that are in effect for the year in which the differences are expected to affect taxable income.
A valuation allowance is established if management believes it is more likely than not that deferred tax assets will not be realized. The realization of these assets depends on future pretax earnings, the reversal of temporary differences between book and tax income, and expected tax rates in future periods. The temporary difference specifically relates to net operating losses, with the deferred tax asset representing the future tax benefit of these differences.
The determination of current and deferred income taxes is considered a critical accounting estimate. This estimate is based on complex analyses of several factors, including interpretations of federal and state income tax laws, evaluations of uncertain tax positions, temporary differences between the tax and financial reporting bases of assets and liabilities, estimates of amounts due or owed, and current financial accounting standards. Prospective franchisees should be aware that these estimates and interpretations could be challenged by tax authorities, and actual results may differ significantly from the estimates used.