GlobalTech, Inc. has a wholly-owned subsidiary, TechnoGlobe, Ltd., that has operated at a loss for much of
Question:
GlobalTech, Inc. has a wholly-owned subsidiary, TechnoGlobe, Ltd., that has operated at a loss for much of the decade leading up to 2019, followed by a couple of years of small earnings, resulting in sizeable NOL carryforwards at the end of 2020. Before now, the managers of GlobalTech had estimated sufficient income to make use of all of the NOL carryforwards, but this year (2021), the managers of GlobalTech have determined that it is more likely than not that there will only be enough future taxable income to make use of 30% of the pre-2019 NOL carryforwards.
What do the managers’ need to recognize on the financial statements of TechnoGlobe, Ltd., and the consolidated financial statements of GlobalTech, Inc. as a result of this new determination? Suppose there are currently $48 million of unused pre-2019 NOLs and the enacted tax rate is 25 percent. Cite the relevant parts of the FASB ASC.
