Last year, CMC recorded a deferred tax asset related to productwarranties and a deferred tax asset related to accelerateddepreciation. A 75% valuation allowance was also established.However, with an upcoming international expansion, Connor andMartin wonder if the company can now reduce or eliminate thevaluation allowance. In addition, Connor and Martin are consideringalternative financing arrangements for equipment to be used in theupcoming expansion. However, they have not used equipment leases inthe past and would like more information. For their second request,they would like you to research the following topics:
What are the sources of income that may be relied upon to removethe need for a valuation allowance?
What are tax planning strategies? Could CMC possibly employ atax-planning strategy to support reducing its valuationallowance?
How do IFRS differ from GAAP regarding accounting for incometaxes? Are there any major issues?
What are the capitalization criteria for a capital lease?
What comprises the lessee's minimum lease payments? What isexcluded?
How do IFRS differ from GAAP regarding accounting for leases?Are there any major issues?
Memorandum Mechanics should be as follows:
The body of the memorandum should be a professional presentationcentered on clear and concise writing. The responses to thequestions should be detailed, well researched, and specificallyrelated to CMC's industry.
The memorandum itself does not have to be in APA format.However, you should have in-text citations and a reference page.Both of these items should be in APA format.
Use the FASB Codification and IFRS to address all technicalaccounting issues presented in the questions, being certain toreference the applicable sections of the Codification and IFRS inyour report. You may quote directly from the Codification and IFRSas long as all direct quotes are included in quotation marks.
Any other sources used to support your responses shouldsimilarly be properly documented. You should have othercredible sources in addition to the Codification andIFRS.
