Company: FSTWF
Filing Date: 2025-05-15
Form Type: 20-F
Source: 0001213900-25-044386
Chunk: 176

Company: FST Corp.
Filing Date: 2025-05-15
Form: 20-F
Item: Item 16
Chunk 176
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)

2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES(cont.)

(r) Cost of sales

Cost of sales mainly consists of costs of raw
materials, consumables, direct labour, outsourced processing fee, overhead costs, depreciation of property, plant and equipment, and inventory
write-downs.

(s) Income taxes

The Group accounts for income taxes under ASC 740.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which the deferred tax assets or liabilities are expected
to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more likely
than not to be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

Based upon the level of historical taxable income
and projections for future taxable income over the periods in which the deferred tax assets are recoverable, management estimated that
it is more likely than not that the results of future operations will not generate sufficient taxable income to realize the deferred tax
assets as December 31, 2024 and 2023. Thus, management recognized a valuation allowance for deferred tax assets not supported by future
reversals of existing taxable temporary differences in certain tax-paying components. While the Group consider the facts above, our projections
of future income may be changed due to the macroeconomic conditions and our business development. The deferred tax assets could be utilized
in the future years if we make profits in the future, and the valuation allowance shall be reversed.

The provisions of ASC 740 prescribe a more-likely-than-not
threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax
return. Recognized tax positions are measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized.

The Group did not accrue any liability, interest
or penalties related to unrecognized tax benefits in its income tax expense (benefit) line of its consolidated statements of operations
and comprehensive loss for the years ended December 31, 2024 and 2023, respectively. The Company will recognize interest and
penalties, if any, related