|
Fundamentals of Tax Accruals |
 |
 |
 |
  
|
Conventions Affecting the Tax Accrual Process
Having examined the basic principles of calculating deferred taxes, it is important you understand that certain applications and special conventions exist that can rearrange amounts that are reflected on a company's financial statement. While a detailed discussion of the following topics is beyond the scope of this lesson, an overview is presented for completeness. The topics include:
- Valuation Allowances
- Intra-period Allocations and Financial Statement Presentation
- Alternative Minimum Tax
Valuation Allowances
Deferred tax assets are recognized for unused deductibles and carryforwards under the presumption they will be realized sometime in the future. The rules for asset recognition are based on the theory that the event giving rise to the deductible or carryforward is the critical event for recognition purposes. Realization of deferred tax benefits is predicated on whether sources of sufficient taxable income of the appropriate character can be identified. If sufficient future income will not exist, deferred tax assets must be reduced by a valuation allowance.
When evidence concerning a taxable income source leads an enterprise to conclude realization of all deferred tax assets is more likely than not (>50%), the deferred tax asset is recognized on the books of the company. When it is more likely than not some or all deferred tax assets will not be realized, the company is required to make an adjustment to its deferred tax asset balance. This correction is known as the valuation allowance adjustment.
|
|
Copyright © 1998 Bizzer Professional Training |
|
|