Analyzing and Interpreting Income Tax Footnote Ahold, a grocery and retail company located in The…

Analyzing and Interpreting Income Tax Footnote

Ahold, a grocery and retail company located in The Netherlands, reports the following footnote for income taxes in its 2012 annual report.


a. What income tax expense does Ahold report in its 2012 income statement? How much of this expense did Ahold pay during the year or antic ipate paying in 2013?

b. Ahold reports deferred tax liabilities relating to property, plant and equipment. Describe how these liabilities arise. How likely is it that these liabilities will be paid? Specifically, describe a scenario that will (i) defer these taxes indefinitely, and (ii) result in these liabilities requiring payment within the near future.

c. Ahold reports a deferred tax asset relating to provisions. Footnotes to financial statements indicate that these provisions relate, in part, to self-insurance accruals. When a company self-insures, it does not purchase insurance from a third-party insurance company. Instead, it records an expense and related liability to reflect the probable payment of losses that can occur in the future. Explain why this accrual (provision) results in a deferred tax asset.

d. Ahold reports deferred tax assets relating to tax losses and credits . Explain how these arise and how they will result in a future benefit.

e. The company reports unrecognized temporary differences and unrecognized tax losses and cred its. These are the IFRS equiva lent of valuation allowances in U.S. GAAP. Why did the company set up these unrecognized portions of deferred tax assets? How did the net decrease in the combined unrecognized amounts from 20 11 to 20 12 affect net income? How can a company use these accounts to meet its income targets in a particular year?

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