Defend the Asset/Liability Approach of Accounting for Inter-Period Income Tax Allocation.

642 WordsApr 7, 20103 Pages
Team 2: Defend the asset/liability approach of accounting for inter-period income tax allocation. The asset/liability method of income tax allocation is balance sheet oriented. The intent is to accrue and report the total tax benefit or taxes payable that will actually be realized or assessed on temporary differences when their respective future taxable or deductible amounts are expected to occur. The book states 5 arguments: 1. The balance sheet is becoming more important financial statement. Reporting deferred taxes based on the expected tax rates when the temporary differences reverse increases the predictive value of future cash flows, liquidity, and financial flexibility. 2. Reporting deferred taxes based on the expected tax…show more content…
For instance, if there are any taxes law or rate changes at any time the asset or liability on the balance sheet for the taxes will be adjusted to reflect those changes. - This approach results in reporting deferred tax assets and liabilities at their expected realizable values. - The deferred method of Opinion II led to the continued increase in size of deferred tax credits (liabilities) on the statement of financial position for most

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