Perepare a standard ASC 740 memorandum that indentifies the accounting rules and

Question

Perepare a standard ASC 740 memorandum that indentifies the accounting rules and the tax rules for the following Schedule M difference for the tax workpapers for Fast Eddie's Cycling Enterprises, Inc. (our client, aka FECES) tax provision.

At the beginning of the year, FECES' tax accumulated depreciation was $1,298,000. Book accumulated depreciation was $289,000. Additions in 2017 were $450,000 and FECES uses straight line depreciation for book purposes and half year convention for book as well. There is no tax depreciation in 2017 for prior year additions. Book depreciation for 2017 for prior year additions is $144,500. If there is no schedule M difference, your memorandum should still explain both book and tax accounting treatment and why there is no schedule M difference.

Explanation / Answer

The full text of ASC 740, Income Taxes, can be found in the FASB Accounting Standards Codification (link to the FASB's Web site; registration required). Also, the full text of the Codification and Deloitte-authored Q&As related to the Codification are available in the Deloitte Accounting Research Tool (DART) Web site (subscription required).

ASC 740 comprises four Subtopics (Overall, Intraperiod Tax Allocation, Other Considerations or Special Areas, and Interim Reporting). Below is an overview of each Subtopic.

740-10 Overall

ASC 740-10 notes the following:

This Subtopic provides guidance for recognizing and measuring tax positions taken or expected to be taken in a tax return that directly or indirectly affect amounts reported in financial statements. This Subtopic also provides accounting guidance for the related income tax effects of individual tax positions that do not meet the recognition thresholds required in order for any part of the benefit of that tax position to be recognized in an entity's financial statements. Under this Subtopic, a tax position is first evaluated for recognition based on its technical merits. Tax positions that meet a recognition criterion are then measured to determine an amount to recognize in the financial statements. That measurement incorporates information about potential settlements with taxing authorities.

740-20 Intraperiod Tax Allocation

ASC 740-20 notes the following:

This Subtopic addresses the process of intraperiod tax allocation that allocates total income tax expense or benefit of an entity for a period to different components of comprehensive income and shareholders' equity. This includes allocating income tax expense or benefit for the year to:

This Subtopic provides guidance on the method for making those allocations of total income tax expense or benefit and provides several examples and illustrations.

740-30 Other Considerations or Special Areas

ASC 740-30 notes the following:

This Subtopic provides the required accounting and disclosure guidance for certain of the specific limited exceptions identified in Subtopic 740-10 to the requirements to record deferred taxes on specific basis differences related to investments in subsidiaries and corporate joint ventures arising from undistributed earnings or other causes.

The accounting addressed in this Subtopic represents, in some situations, an exception to the otherwise required comprehensive recognition of deferred income taxes for temporary differences.

At the beginning of the year, FECES' tax accumulated depreciation was $1,298,000. Book accumulated depreciation was $289,000. Additions in 2017 were $450,000 and FECES uses straight line depreciation for book purposes and half year convention for book as well. There is no tax depreciation in 2017 for prior year additions. Book depreciation for 2017 for prior year additions is $144,500. If there is no schedule M difference, your memorandum should still explain both book and tax accounting treatment and why there is no schedule M difference.

This Subtopic provides guidance for recognizing and measuring tax positions taken or expected to be taken in a tax return that directly or indirectly affect amounts reported in financial statements. This Subtopic also provides accounting guidance for the related income tax effects of individual tax positions that do not meet the recognition thresholds required in order for any part of the benefit of that tax position to be recognized in an entity's financial statements. Under this Subtopic, a tax position is first evaluated for recognition based on its technical merits. Tax positions that meet a recognition criterion are then measured to determine an amount to recognize in the financial statements. That measurement incorporates information about potential settlements with taxing authorities.

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