Discounting Deferred Tax Liability

Good Essays
FRS 19 Deferred Taxation
Summary Full provision for deferred taxation now required Accelerated capital allowances Pension costs Unrealised group profits Interest costs capatilised Unrelieved tax losses Other short term timing differences Not for: ` Re-valued fixed assets Rollover relief availed of Remittance of overseas sub.

Recognise DT asset if it is more likely than not to be recovered Where assets continually re-valued to fair value: provide DT Permits discounting Use tax rates enacted or substantively enacted Separately disclose where very material Reconciliation of current tax charge Don 't provide DT where FRS 7 adjustment made Applies to all financial statements FRSSE are exempt

Accounting periods ending on or after 23 January 2002 SSAP 15 gone Background and discussion IAS 12 full recognition of DT but uses "temporary differences" rather than "timing differences". Temporary is wider then timing - it includes re-valued fixed assets, and rollover relief No discounting in IAS Three methods of accounting for deferred tax: Flow through: no deferred tax provided for. Full provision: provide DT on all timing differences Partial provision: reflects the tax this is expected to be paid and excludes perm. differences. Anticipate fixed asset purchases and tax planning activities. Partial (SSAP 15) did not deal well with pensions and was inconsistently applied. FAS 109 and other international standards required full provision. All timing differences reverse - in time so why not provide for them. Partial relied on an assessment of what management were going to do. It should be based

on obligations rather then intentions which is consistent with FRS 12. UK were out of step internationally on this point. Move towards full provision in FRS 19. Flow through with disclosure rejected. Volatile results and out of step with IAS and FAS. IAS argued that a fixed asset will general cash flows at least equal to the carrying amount, tax will be payable on these inflows.

You May Also Find These Documents Helpful

  • Good Essays

    Deferred Tax Assets

    • 1004 Words
    • 4 Pages

    Deferred Tax Assets There are a few accounting differences between tax (IRS) accounting and US GAAP accounting. Some differences cause deferred tax asset which is a future tax benefit. For example, say a firm currently is offering a special onetime 2-year warranty when a customer purchases its product. The firm estimates that over a 2-year period it is likely to spend a total of $200,000 in warranty repairs. The following presents the reported income for this 2-year period using US GAAP rules:…

    • 1004 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Summary Deferred Tax

    • 360 Words
    • 2 Pages

    the amount of income and expenses reported for GAAP and income tax purposes. The objective for GAAP reporting is to report the economic activities of the entity. The objective for income tax purposes is for the government to raise revenue. There are two terms that identify the types of income subject to tax under each reporting system. Firstly, pretax financial income is determined using GAAP. It is the amount of income on which income tax is computed for financial statement purposed. It is formally…

    • 360 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Deferred Tax Case Summary

    • 2153 Words
    • 9 Pages

    1) What is the economic intuition and what are the concepts underlying deferred tax accounting? What goals/objectives are standard setters trying to achieve by requiring deferred tax accounting, compared to say, just having companies recognize tax expense as the cash paid (or at least currently owed) to the government? The economic intuition of deferred tax accounting is to account for the differences between the tax expense shown in the financial statements and the current taxes payable…

    • 2153 Words
    • 9 Pages
    Powerful Essays
  • Powerful Essays

    levied by the federal through the income tax payable that will become the company’s income tax expense when it is paid. The tax net includes the personal profit, business income, and the capital gain. Referring to Australian Accounting Standard Board (AASB) 112, the income tax expense (income) is not merely equal to current tax liability (asset), but also the function of the deferred tax liabilities and assets (Leo, Hoggett, & Sweeting, 2012). The tax which incurred to a company will depend on…

    • 1434 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    KPMG Deferred Tax Issues

    • 1179 Words
    • 5 Pages

    KPMG Deferred Tax Issues: Valuation Allowance Issue 1: Conclude on the appropriateness of the engagement team’s decision for valuation allowance. 1. Clarify Issues & Objectives ASC 740-10-05-5 defines a deferred tax asset as: A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of…

    • 1179 Words
    • 5 Pages
    Good Essays
  • Good Essays

    allowance for Deferred Tax Assets. I also explain the current sources of deferred tax for Packer, Inc. Applying GAAP, I will advise not using a valuation allowance of 60% of deferred tax assets. I. Sources of deferred taxes Deferred tax liabilities A deferred tax liability is recognized for temporary differences that will result in taxable amounts in future years. In Packer, Inc’s case, depreciation has been recognized as deferred tax liabilities. Packer uses straight-line depreciation, for tax purposes…

    • 679 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Discounting of Notes

    • 1415 Words
    • 6 Pages

    money or to bearer. * Dishonored notes – when promissory note matures and is not paid. This should be removed from the notes receivable account and transferred to accounts receivable at an amount including, if any, interest and other charges. * Discounting of Notes – the payee may obtain cash before maturity date at a bank or other financing company. The payee then becomes the endorser; the bank or other financing company becomes the endorsee. Sample Promissory Note Elements…

    • 1415 Words
    • 6 Pages
    Good Essays
  • Powerful Essays

    Bill Discounting

    • 2433 Words
    • 10 Pages

    TOPIC: BILL DISCOUNTING By: Amit dange College : k.v.pendharkar dombivli INTRODUCTION Bill discounting, as a fund-based activity, emerged as a profitable business in the early nineties for finance companies and represented a diversification in their activities in tune with the emerging financial scene in India. In the post-1992 (scam) period its importance has substantially declined primarily due to restrictions imposed by the Reserve Bank of India. DEFINITION: Bill discounting is a major…

    • 2433 Words
    • 10 Pages
    Powerful Essays
  • Satisfactory Essays

    Liability Alex Washington ACC 205 Principles of Accounting I Instructor: James Rodisch July 28, 2013 1. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven Publishing: * Social Security taxes: 6% on the first $55,000 earned per employee * Medicare taxes: 1.5% on the first $130,000 earned per employee * Federal income taxes withheld from wages: $7,500 * State income taxes: 5% of gross earnings * Insurance withholdings:…

    • 912 Words
    • 4 Pages
    Satisfactory Essays
  • Good Essays

    Deferred Taxes

    • 327 Words
    • 2 Pages

    Due to contingent liabilities, many companies report different amounts of income on their income statement than on their income tax return, which leads to deferred income tax balances. A company is required to accrue a contingent liability if it is probable that the liability has been incurred and the amount can be estimated. This case study focuses on accounting implications of the most common contingencies—warranties and lawsuits—at Maytag Corporation, a leading manufacturer of home and commercial…

    • 327 Words
    • 2 Pages
    Good Essays