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Fundamentals of Tax Accruals |
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Intra-period Tax Allocations and Financial Presentation
Intra-period tax allocation means that significant components of income tax expense arising from continuing operations must be disclosed. Income tax expense must be allocated within an accounting period between continuing operations and other components of net income (e.g., discontinued operations, extraordinary items, etc.). This information can be disclosed in the income statement (the usual case) or in a footnote to the income statement.
With respect to the Balance Sheet, the classification of deferred tax liabilities and assets is a bifurcation process. Accordingly, all deferred tax liabilities and assets must be classified as current or noncurrent. Under Statement 109, the current and noncurrent components of deferred tax balances are to be reported separately based on the financial statement classification of the related asset or liability giving rise to the temporary difference. If a deferred tax asset or liability is not related to an asset or liability that exists for financial reporting purposes (including deferred tax assets related to carryforwards), the deferred tax asset or liability would be classified as current or noncurrent based on the expected reversal date of the temporary difference.
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Examples of temporary differences that are not related to a specific asset or liability include organizational costs expensed for financial reporting but deferred and deducted in later years for income tax purposes, long-term contracts accounted for by the percentage-of-completion method for financial reporting and by the completed-contract method for tax purposes, and certain tax accounting changes. |
Once current or noncurrent classification has been determined, all current amounts are netted to get a net current asset (or liability) and the noncurrent amounts are similarly netted to obtain a net noncurrent amount. The example detailed on the following page illustrates these concepts.
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Copyright © 1998 Bizzer Professional Training |
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