Accounting Research Tool
Appendix D — Sample Disclosures of Income Taxes

D.10 Separate Company Financial Statements

D.12 Separate Company Financial Statements

Sample Disclosure
Our company is included in the consolidated tax return of Parent P. We calculate the provision for income taxes by using a separate-return method. Under this method, we are assumed to file a separate return with the tax authority, thereby reporting our taxable income or loss and paying the applicable tax to or receiving the appropriate refund from P. Our current provision is the amount of tax payable or refundable on the basis of a hypothetical, current-year separate return. We provide deferred taxes on temporary differences and on any carryforwards that we could claim on our hypothetical return and assess the need for a valuation allowance on the basis of our projected separate-return results.
Any difference between the tax provision (or benefit) allocated to us under the separate-return method and payments to be made to (or received from) P for tax expense is treated as either dividends or capital contributions. Accordingly, the amount by which our tax liability under the separate-return method exceeds the amount of tax liability ultimately settled as a result of using incremental expenses of P is periodically settled as a capital contribution from P to us.