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AMcCauley_Courwse Project Week 3_102016

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AMcCauley_Courwse Project Week 3_102016

Memorandum Accounting for Leases and Income Taxes

Amanda McCauley

Rasmussen College

Author Note

This paper is on October 23, 2016, for Robert

Larison's ACG4619 Section 02 Corporate and International

Accounting course.

MEMORANDUM

TO: Connor and Martin, CMC

FROM: Amada, Financial Advisor

DATE: 23rd, October 2016

SUBJECT: ACCOUNTING FOR LEASES AND INCOME TAXES

Sources of Income needed for Valuation Allowance

For valuation allowance, FASB 92 under accounting for income

provides that deferred tax liability shall for the estimation of

future tax impacts relating to the temporary differences as well as carry

forwards. Moreover, there it provides that the deferred tax assets shall

1 Passive voice

2 Passive voice

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be recognized 3 be realized 4

process 5

to the level 6

Paragraph 7 of the Financial Accounting Standards provides four

criterions for the classification of capital lease: (a) there is a transfer of

for temporary differences resulting in the in carry

forwards plus deductible amounts that may in the future

years (Kieso, Weygandt & Warfield, 2010).

Tax Planning Strategies

FASB 106 defines tax planning strategy as possible taxable income

source needed for the determination of the required valuable

allowance. It is a practice or action that a firm may not implement and

if necessary may apply to enjoy a tax benefit due to an operating loss

and or credit carrying forward before its expiry. Because of tax

planning strategy, an enterprise does not need a valuation allowance

for some part or the entire deferred tax asset. FASB 107 provides that

a tax planning strategy should be prudent as well as feasible and

FASB 109 concludes that organizations should employ tax planning

strategies if they are expected to lead to significant costs. However, in

the case of CMC, the management cannot apply tax planning

strategies for the current period to generate a tax benefit in the future

for it is a prohibition under FASB 109 (Kieso, Weygandt & Warfield,

2010).

Income Taxes: IFRS versus GAAP

The need for American firms to shift from GAAP principles to IFRS will

have some impacts on cash taxes, FIFO, LIFO, fair value

measurements as well as uncertain tax positions. First, whereas

GAAP principles allow the companies to use the LIFO principle, the

IFRS standard prohibits the use of LIFO. For this reason, United

States companies using the LIFO method will have to incur tax cost to

adopt the IFRS standard for financial reporting. Under IFRS, tax

uncertainty liability is dependent on the sum of taxes payable to tax

authorities. Moreover, it does not recognize GAAP's recognition as

well as measurement processes. "The International Accounting

Standards Board is in the of developing similar

requirements which would require enterprises to book their

prospective liabilities they consider them inevitable- a

lower standard compared to that under GAAP" (Swenson &

Namryoung, 2009).

Capitalization Criteria for Lease

3 Passive voice

4 Passive voice

5 Repetitive word: process

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ownership of property of a lease to the lessee by the end of its term;

(b) the lease has a bargain buying option; (c) the term of the is

equal to, or more than 75 percent of the leased property's economic

life; and (d) at the commencement of the lease term the lessor pays at

least 90 percent of the property's fair value.

lease 8

7 value 9

It includes: "for the , all amounts he or guarantees

or any amount by a party associated with the ;

for , all residual value promised to a by the lessee, a

lessee and a third party not related to the

who has the financial ability to discharge the obligation as

lessee 11 guaranteed 12 lessee 13

lessor 14 lessor 15 party associated with the 16 lessor 17 provided in a guarantee.10

is contained 18

lease 19 an

agreement 20

classifications 21 Under paragraphs 10 and 11,

IFRS provides the following for a lease: "(a) there

must be a transfer of property ownership to a lessee at the end of

lease period; (b) it must contain an option of bargain purchases; the

classifications 23

The does not

include any executor costs like insurance costs, maintenance costs as

well as taxes incurred by the lessor and it must also include all profits

(Kieso, Weygandt & Warfield, 2010).

Components of Lessee's Minimum Lease Payment

The International Accounting Standards 17 refers to minimum lease

payments as the payments that a lessee is expected to make within a

lease term.

It does not include the contingent rent,

services costs as well as taxes paid by the lessor" (Kieso, Weygandt &

Warfield, 2010).

Accounting for Leases: IFRS versus GAAP

Accounting for leases under ASC 840 in the United

States GAAP and IAS 17 under IFRS. Under GAAP's ASC a lease is

an agreement that conveys the right to use equipment, plant, and

property for a specified duration. IAS 17 of IFRS defines as

in which there is a transfer of rights to use a particular

asset. Thus, it includes not only the conveyance but also the right to

use a particular asset. Under GAAP, ASC 840-10-25-1, classifies a

capital lease as a lease that contains an option for bargain purchases,

the lease term should be at least 75 percent of a property's economic

life, and there must be a transfer of property ownership to a lessee at

the end of lease period. Under IFRS, these classifications are not

necessary for lease .

7 Wordiness

8 Repetitive word: lease

9 Repetitive word: value

10 Wordiness

11 Repetitive word: lessee

12 Repetitive word: guaranteed

13 Repetitive word: lessee

14 Possibly confused word: lessor

15 Repetitive word: lessor

16 Repetitive word: associated

17 Repetitive word: lessor

18 Passive voice

19 Repetitive word: lease

20 Repetitive word: agreement

21 Repetitive word: classifications

22 Wordiness

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lease term must account for a major portion of the product's economic

life span" (Kieso, Weygandt & Warfield, 2010).22

How will IFRS Affect

Accounting for Income Taxes 24

References

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2010). Intermediate

Accounting: IFRS Edition. (Vol. 2). Hoboken, N J: John Wiley & Sons.

Swenson, C., & Namryoung, L. (2009).

? Retrieved on October 21, 2016 from

https://www.aicpastore.com/Content/media/PRODUCER_CONTENT/

Newsletters/Articl es_2009/Tax/IFRS.jsp

23 Repetitive word: classifications

24 Unoriginal text: 8 words www.aicpastore.com/Content/media/PRODUCER_C…