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Tax Loss Carryback and Carryforward Accounting (Canada/IFRS) - Part 2 of 2 - YouTube
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Catherine Duffy: Welcome back.
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Let's wrap up this question on loss carrybacks
and loss carryforwards.
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Here's the values that we've calculated for
the loss carrybacks.
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This is the portion that we're going to ask
for a refund back.
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This is not an expense.
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This is a benefit, a credit, to the income
tax income statement account.
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It's a benefit, as well as the deferred tax
asset that we set up will result in a deferred
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tax benefit of $8,400.
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Here's the 2 numbers related to 2017.
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Then, we'll move on and we'll do the accounting
for the tax year of 2018.
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In 2018, we'll make the assumption that at
the end of 2018 we calculated a taxable income
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of $20,000.
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Now, we need to go and calculate that current
tax and deferred tax situation, but knowing
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that we had some loss carryforwards left over
from 2017 to affect this year's calculation
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of taxes.
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Now, we've fast forwarded a year and we're
in 2018.
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We're doing the calculation of the current
and the deferred tax for 2018.
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In 2018, I gave you the fact that we experienced
a taxable income that year of $20,000.
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The first thing we want to do with that taxable
income ... We don't want to pay taxes on that
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yet.
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We want to check to our tax return and say,
"Hey.
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Do we have any loss carryforwards?"
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It turns out that we do.
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We're going to apply the loss carryforward
that we had at the end of last year.
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It was a $50,000 loss carryforward.
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We don't need the whole thing.
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We only apply $20,000 to 2018.
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We'll have no current tax owing for this year.
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However, we've used up $20,000 of our loss
carryforward of the total $50,000, if you
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remember, from 2017 loss carryforward.
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Then, when we go do our deferred tax calculation,
we're going to look at that loss carryforward
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that we have of $50,000, but we used in 2018,
$20,000 of it.
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We now only have $30,000 remaining, so the
remaining loss carryforward.
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Then, you have to ask the same question you
did in 2017.
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Do I think I can earn taxable income of $30,000
in the next 19 years, because we're 1 year
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forward?
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In the next 19 years, do I think I can use
$30,000?
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I'm just going to stick with the same assumption
we made in 2017.
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I'm going to assume that 80% we can use, and
20% right now we're estimating that we can't
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use.
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We'll do our deferred tax calculation based
on this 80%.
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The 80%, we have a deferred tax.
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That works out to $24,000 loss carryforward
times the tax rate of 21%.
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We want a deferred tax asset of $5,040.
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That's the deferred tax asset we want at the
end of 2018.
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Our unadjusted balance is $8,400 that we set
up as a deferred tax asset last year, if you
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recall.
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Our journal entry to record to deferred tax
for this year is we're going to record an
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expense of $3,360.
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We're going to take that deferred tax asset
account, and we want to bring it down from
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a debit of $8,400, we want to bring it down
to a debit of only $5,040.
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We're going to credit the deferred tax asset
account, and we're going to debit deferred
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tax expense for $3,360.
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We've got $0 current tax expense this year,
and we have $3,360 of deferred tax expense
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for this year.
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Now, we're in 2018 with a $20,000 taxable
income.
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It results in no current tax needing to be
recorded because we had a loss carryforward
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at the end of 2017 of $50,000, which we applied
to this taxable income of $20,000 and resulted
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in we didn't have to pay any tax this year.
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However, our loss carryforward now at the
end of 2018 is a smaller number.
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It's resulting in a smaller deferred tax asset.
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We had to reverse out some of the deferred
tax asset that we had, which resulted in a
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deferred tax expense entry here.
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Now, I want to show you just as a wrap-up,
a summary of what the journal entries looked
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like for both 2017 for taxes and 2018 tax
journal entries.
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In 2017, the current tax entry was a debit
to income tax recoverable, or receivable,
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and a credit to current tax benefit on income
statement account.
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$8,200 was the current tax recoverable, so
that's a balance sheet account of $8,200,
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and the income statement would have a favorable
number of $8,200.
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The deferred tax journal entry, to set up
the deferred tax asset for the loss carryforward
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was a debit to the deferred tax asset of $8,400,
and a credit to deferred tax benefit of $8,400.
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Again, you'll have an asset on your balance
sheet of $8,400.
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It will be a long-term asset following IFRS.
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These two figures will be favorable numbers
in your income statement for 2017.
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Then, we moved on to 2018, and we had no current
tax owing because we applied that loss carryforward
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to the $20,000 of taxable income.
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No current tax owing, so no journal entries
required.
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The deferred tax asset that you would set
up here of $8,400, we had to draw it down
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because we have less tax carryforward.
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We want to draw down that deferred tax asset,
so you'll credit the deferred tax asset to
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make it smaller.
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We'll draw it down by $3,360, and the other
side of the entry is a debit to deferred tax
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expense of $3,360.
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That number will be on your income statement
as an unfavorable value.
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This number will offset, will be a credit
to the account of $8,400.
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The result will be on your balance sheet.
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You'll have a $5,040 worth of long-term deferred
tax asset.
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That summarizes the journal entries that we
created for both fiscal year 2017/2018, applying
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the loss carryback and loss carryforward rules.
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I hope you enjoyed this video, and found some
value to this, and look forward to seeing
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you again soon.
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Bye for now.
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