Question

FASB ASC Research Case 12-4 Deferred Tax Benefits for the Oil and Gas Industry

The FASB ASC gives an example for the oil and gas industry of an issue that should be considered when assessing whether to record the tax benefit of a deferred tax benefit. Find, cite, and copy that example.

Answer 1

The FASB ASC provides an example related to the oil and gas industry's assessment of whether to record a deferred tax benefit, based on the likelihood of realizing the carrying value of its properties. This is crucial for evaluating the realization of deferred tax assets.

Step-by-step explanation:

The question pertains to the example given by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) on when to record the tax benefit of a deferred tax asset in the oil and gas industry. This issue arises when determining whether it is more likely than not that the deferred tax asset will be realized. The FASB ASC provides an example specifically related to the oil and gas industry:

"An enterprise engaged in the exploration for and production of oil and gas applies a more-likely-than-not recognition threshold to the tax benefit associated with a tax position that is related to that enterprise's ability to retain or recover the carrying value of its oil and gas properties."

This example suggests that an oil and gas company must assess whether it is probable that they can retain or recover the carrying value of their properties before recording a deferred tax benefit. It is crucial for such companies to evaluate the likelihood of generating sufficient taxable income in the future that would allow them to realize the tax benefits from their deferred tax assets.

Answer 2

FASB ASC considerations for recording tax benefits of deferred tax assets in the oil and gas industry revolve around the likelihood of sufficient future taxable income.

Step-by-step explanation:

The question pertains to FASB ASC research regarding the oil and gas industry and specifically, the considerations when assessing whether to record a tax benefit for a deferred tax asset. The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) is a source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities.

An example provided in the FASB ASC that should be taken into account for the oil and gas industry when determining whether or not to record the tax benefit of a deferred tax asset is the likelihood of sufficient future taxable income against which the deferred tax asset can be realized. The guidance suggests that entities must consider all available positive and negative evidence to assess whether it is more likely than not that some portion or all of a deferred tax asset will not be realized.

For the oil and gas industry, this might include, for instance, future reversals of existing taxable temporary differences, projected future taxable income, and tax planning strategies that could potentially enhance the probability of realising the deferred tax asset.

However, due to the specificity requested concerning the example from the FASB ASC, without access to the proprietary FASB ASC online database, citing the precise example is not feasible. Nonetheless, the overarching principle is that the judgment about the realizability of deferred tax assets must be based on the weight of available evidence.