Question

What are the six exceptions to the basic requirements of FASB ASC 740? Briefly describe each of the exceptions.

Answer 1

The only exceptions in applying those basic requirements are: a. Certain exceptions to the requirements for recognition of deferred taxes whereby a deferred tax liability is not recognized for the following types of temporary differences unless it becomes apparent that those temporary differences will reverse in the foreseeable future:

1. An excess of the amount for financial reporting over the tax basis of an investment in a foreign subsidiary or a foreign corporate joint venture that is essentially permanent in duration.

2. Undistributed earnings of a domestic subsidiary or a domestic corporate joint venture that is essentially permanent in duration.

3. Bad debt reserves for tax purposes of U.S. savings and loan associations (and other qualified thrift lenders).

4. Policyholders’ surplus of stock life insurance entities that arose in fiscal years.

b. Recognition of temporary differences related to deposits in statutory reserve funds by U. S. teamship entities.

c. The pattern of recognition of after-tax income for leveraged leases or the allocation of the purchase price in a purchase business combination to acquired leveraged leases.

d. A prohibition on recognition of a deferred tax liability related to goodwill (or the portion thereof) for which amortization is not deductible for tax purposes.

e. A prohibition on recognition of a deferred tax asset for the intra-entity difference between the tax basis of the assets in the buyer’s tax jurisdiction and their cost as reported in the consolidated financial statements. Income taxes paid on intra-entity profits on assets remaining within the group are accounted.

f. A prohibition on recognition of a deferred tax liability or asset for differences related to assets and liabilities that are remeasured from the local currency into the functional currency using historical exchange rates and that result from changes in exchange rates or indexing for tax purposes.