What method does Petro Stopping Center use to provide for deferred tax?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences except:
- Where the deferred tax liability arises on the initial recognition of goodwill.
- Where the deferred tax liability arises on the initial recognition of an asset or liability in a transaction that is not a business combination, at the time of the transaction, affects neither accounting profit nor taxable profit or loss and, at the time of the transaction, does not give rise to equal taxable and deductible temporary differences.
- In respect of taxable temporary differences associated with investments in subsidiaries and associates and interests in joint arrangements, where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized, except where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination, at the time of the transaction, affects neither accounting profit nor taxable profit or loss and, at the time of the transaction, does not give rise to equal taxable and deductive temporary differences.
In respect of deductible temporary differences associated with investments in subsidiaries and associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable or increased to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.
Source: Item 23 — RECEIPTS **RECEIPTS (FDD pages 87–131)
What This Means (2025 FDD)
According to the 2025 FDD, Petro Stopping Center uses the liability method to provide for deferred tax. This method is applied to temporary differences that exist at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts used for financial reporting.
Deferred tax liabilities are generally recognized for all taxable temporary differences. However, there are exceptions, such as when the liability arises from the initial recognition of goodwill or from an asset or liability in a transaction that is not a business combination, provided certain conditions are met. Additionally, exceptions apply to investments in subsidiaries, associates, and joint arrangements if Petro Stopping Center can control the timing of the reversal of temporary differences and it's probable these differences won't reverse in the foreseeable future.
Furthermore, Petro Stopping Center recognizes deferred tax assets for deductible temporary differences, carry-forward of unused tax credits, and unused tax losses, but only if it is probable that taxable profit will be available to utilize these items. The carrying amount of these deferred tax assets is reviewed at each balance sheet date and adjusted based on the probability of sufficient taxable profit being available. These assets and liabilities are measured using the tax rates expected to be in effect when the asset is realized or the liability is settled, based on enacted or substantively enacted tax laws at the balance sheet date. Deferred tax assets and liabilities are not discounted.
It is important for a prospective franchisee to understand these accounting methods, as they can significantly impact the financial statements of Petro Stopping Center and, consequently, the franchisee's understanding of the business's financial health. Reviewing Note 7 and Note 27, as referenced in the FDD, may provide additional clarity on these matters.