D.10 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.
For more information on entities with separately issued financial
statements that are members of a consolidated tax return, see ASC 740-10-50-17(b) and
50-17A.