Intermediate Accounting III
I chose Apple for my course project mainly based on the fact that they release all their records to the public and they have excellent accounting practices. Their paper work is easy to read and follow and based on their records they have an endless amount of revenue in the billions. As we have discussed about Apple in class I was very intrigued how they looked in the books on a specific level of detail and this course project was the perfect way to take initiative to find out just how their numbers actually add up answering the following questions.
1. What amount of deferred tax assets or deferred tax liabilities are on the two most recent years on the balance sheet? What gives rise to these deferred taxes? What information is disclosed in the footnotes related to deferred taxes? Please define a deferred tax asset and deferred tax liability. At year end September 24 2011 the balance sheet shows following amount of deferred tax assets and liabilities:
Current assets: $(000)
Deferred tax assets 2,014
Deferred revenue 4,091
Deferred revenue 1,686
Deferred tax asset is arising due to deductible temporary differences, tax losses, and tax credits of $3.2Billion and deferred tax liabilities of $9.2Billion. Deferred revenue is recorded when the company receives payments of their products in advance or for the performance of services. It includes amount for unspecified and specified software upgrade rights and non-software services that are attached to the products of the company. It is disclosed in the footnotes that Deferred tax assets and liabilities shows the effects of tax losses, credits, and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of current assets and liabilities and their respective tax bases and are measured using en-acted tax rates that apply to their taxable income in the years in which these temporary differences are expected to be recovered or settled. Footnotes also states that company records a valuation allowance in order to reduce the deferred tax asset to the amount it thinks cannot be realized. Deferred tax asset:
Deferred tax asset is defined as reduction in company’s future taxes as the company has already paid for these taxes in past. It is like a prepaid tax. It is used to reduce later period’s income taxes. Deferred tax liability:
Deferred tax liability is defined as liability that the company owes but they don’t have to pay it in the current time but will be due in some future time. This often results due to difference in tax regulations and accounting practices.
2. What temporary and permanent differences does the company disclose in its footnotes? What are some other examples of temporary and permanent differences?
Following is the differences temporary and permanents that company disclose in its balance sheet:
| | | | | | | | |
| | 2011| | | 2010| |
Deferred tax assets:| | | | | | | | |
Accrued liabilities and other reserves| | $| 1,610| | | $| 1,369| | Basis of capital assets and investments| | | 390| | | | 179| | Share-based compensation| | | 355| | | | 308| | Other| | | 795| | | | 707| |
| | | | | | | | |
Total deferred tax assets| | | 3,150| | | | 2,563| | Less valuation allowance| | | 0| | | | 0| | | | | | | | | | |
Deferred tax assets, net of valuation allowance| | | 3,150| | | | 2,563| | | | | | | | | | |
Deferred tax liabilities:| | | | | | | | |