Question

In: Accounting

Last year, CMC recorded a deferred tax asset related to product warranties and a deferred tax...

Last year, CMC recorded a deferred tax asset related to product warranties and a deferred tax asset related to accelerated depreciation. A 75% valuation allowance was also established. However, with an upcoming international expansion, Connor and Martin wonder if the company can now reduce or eliminate the valuation allowance. In addition, Connor and Martin are considering alternative financing arrangements for equipment to be used in the upcoming expansion. However, they have not used equipment leases in the past and would like more information. For their second request, they would like you to research the following topics:

What are the sources of income that may be relied upon to remove the need for a valuation allowance?

What are tax planning strategies? Could CMC possibly employ a tax-planning strategy to support reducing its valuation allowance?

How do IFRS differ from GAAP regarding accounting for income taxes? Are there any major issues?

What are the capitalization criteria for a capital lease?

What comprises the lessee's minimum lease payments? What is excluded?

How do IFRS differ from GAAP regarding accounting for leases? Are there any major issues?

Memorandum Mechanics should be as follows:

The body of the memorandum should be a professional presentation centered on clear and concise writing. The responses to the questions should be detailed, well researched, and specifically related to CMC's industry.

The memorandum itself does not have to be in APA format. However, you should have in-text citations and a reference page. Both of these items should be in APA format.

Use the FASB Codification and IFRS to address all technical accounting issues presented in the questions, being certain to reference the applicable sections of the Codification and IFRS in your report. You may quote directly from the Codification and IFRS as long as all direct quotes are included in quotation marks.

Any other sources used to support your responses should similarly be properly documented. You should have other credible sources in addition to the Codification and IFRS.

Expert Solution

company can reduce or eliminate the valuation allowance?

if therhere is any possibility of increase in the taxable income in future,then surely valuation allowance can be reduced by doing reversal.

sources of income that may be relied upon to remove the need for a valuation allowance.

as i have already mentioned if therr is any possibility of getting taxable income in future,then no valuauation account is neccessary to maintain.

If company carrirs only net loss in the future, then also no need to maintain valuation account

what are thr tax planning strategies

companpany can ccarry forward the existsting taxable income

Carry forward of losses to future taxable income

Company can sell their building to realise the taxable gain, they can either sell it or lease it and then they can buy another suitable building.

Could cmc possibly employ a tax planning strategy to support reducing its valuation allowance?

Tax planning strategy wil helps to reduce the expected future loss.it wil not help the company to save tax and also to save cash.

how IFRS differs frim GAAP rregarding accounting for inconcome taxes

in GAAP deffered tax assets are recognised in full, then it will be reduced by a valuation allowance.

But in IFRS deffered tax assets are recognised if it is probable that they will be used.here there is no valuation allowances concerning deffered tax assets.

what are the capitalization criteria for a capitatal lease

the lessee can take a ownership of asset

The lessee can buy assets at a lower price from lessor

The minimum payment should require fair value of asset based on present value of assets

Lessee can use the asset atleast for 75% of life time,lessor will not be having any control over that asset in that particular time period.

what comprises the lessees miniinimum lease ppayments.what is excluded

the lessee has to make rregular payment to lessor in case the company failils to buy equipment for usefuful life.so tthey wil rent ththe equipmement and pays rent on reguregular basis.it includes bargain pupurchse ooption,premium.

It exclude any contingent rentals

how IFRS differs from GAAP regarding accounnting for lease

in GAAP all leases are accounted for similar to a ffinfinace lease for lessee

Ifrs doesnot distinguish lease classifications for a lessee

GAAP lessor has three categorirs to determine clasification

IFRS lessor obly has two categories to classify lease

.

ekkarill92 answered 1 year ago

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