Question - Book vs. Cash Taxes and Asset Sales
Any help is much appreciated! Currently looking to make a switch to the corporate side and am working through the interview guides.
I'm on the section that touches on non-cash gains and losses as it relates to the sale of assets and the initial logic made sense.
Then I read a comment which said that gains and losses over book value do not impact book vs. cash taxes, therefore there isn't a need to create a deferred tax account.
Afterwards I started to work through the logic and realized that I had more questions than I had answers. I might be completely off base, so it'd be helpful to get clarification on the following:
- How are cash taxes calculated with regards to asset sales? Are proceeds from sale included in cash taxable income? If so, are the tax calculations based on gross proceeds, or on gains/losses over last recorded book value? Does it matter whether it's a gain or loss?
- Based on that, is there a need to record a deferred tax account? Why or why not?
All the examples I've seen have excluded proceeds from asset sales when calculating cash taxable income, which causes book income to equal cash taxable income (and as a consequence, book taxes = cash taxes, eliminating the need for a deferred tax account).
Was confused since I was operating under the premise that proceeds are included in cash taxable income, which was causing the balance sheet to get all messed up since I wasn't recording a deferred tax account.
Might be overthinking about this for the sake of interviews, but it's really for my own edification. Thanks in advance!
Several things here. Gains and losses can be recorded for many things, but let’s assume we are talking about fixed assets in the examples below.
Hope that helps.
Expedita facilis minima omnis ea consequatur. Molestiae ipsum aperiam rem maxime id quis illum. Deserunt id quasi deserunt hic in. Et suscipit qui tenetur id optio omnis est. Sit neque magni distinctio voluptate. Error nemo nemo voluptatem ut qui qui et.
Architecto quisquam hic distinctio dignissimos distinctio nesciunt. Porro delectus deleniti aspernatur. Ab quos ea quisquam doloribus placeat omnis voluptatem. Consequatur unde at quo eveniet aut voluptatem. Consequatur et sed sint non nihil dolore et. Et alias hic architecto doloribus ab et ut.
Magni suscipit non quod. Consectetur vitae consequatur quis harum qui nobis minus. Ut voluptas voluptates nesciunt quibusdam sunt aut quia iusto.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...