Question

a> assuming the Walmart had no significant permanent differences between book income and taxable income, did income before taxes for financial reporting exceed or fall short of taxable income for the year ending January 31, 2016(hereafter, fiscal 2015)? explain

b>assuming all current taxes are paid in cash, will the adjustment to net income for deferred taxes to compute cash flow from operations tin the statement of cash flows result in an addition or subtraction for fiscal 2015?

c>walmart reports deferred revenue for sales of gift certificate and for Sam's club membership fees. These amounts are taxed when collected, but not recognized in financial reporting income until tendered at a store. why does the tax effect of differed revenue appear as deferred tax asset ?

d> walmart recognizes a valuation allowance on its deferred tax assets to reflect net operating losses of consolidated foreign subsidiaries. The valuation allowance decreased over the last year. what effect does this have on net income in the most recent year( fiscal 2015)?

Answer 1

a) If there are no permanent differences, then there may exist temporary or timing differences which makes Walmart claim more depreciation as per books of accounts and less as per tax statements. Thus profit as per financial reporting will exceed profit as per tax statement.

b)Any increase in a deferred tax asset or decrease in a deferred tax liability is subtracted as part of adjustments to net income (loss). Vice versa, any decrease in a deferred tax asset or increase in a deferred tax liability is added back to net profit (loss).

c)Because as per tax profit and loss revenue has been recognized and tax has been calculated but as per books of accounts same revenue has been deferred and not recognized resulting in more tax payable as compared to books of accounts. This additional tax paid will be reversed in the year in which revenue is recognized in books of accounts. Since in current year we are paying more tax it is an asset and hence deferred tax asset for current year which will be reversed in future.

d) Decrease in valuation allowance decrease deferred income tax expense resulting in increase of net income or decrease in net loss.