Lucent Technologies Deferred Taxation

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Executive Summary

This memorandum is intended to communicate the deferred tax issues of Lucent Technologies Inc. on the basis of analysis of the veracity of the situation according to the reporting framework’s guidelines to anticipate unfavorable implications that had been resulted due to poor performance of the company over the past years. The Financial Accounting Standards Board (FASB) is the recognized body for making pronouncements as Generally Accepted Accounting Principles (GAAPs) in the United States. The FASB has promulgated Statement of Financial Accounting Standard # 103 “Accounting for Income Taxes” which specifically prescribes the treatment of income taxes of corporate entities and guidance for how deferred taxes should be
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The components of deferred income tax assets and liabilities are as follows; Year Ended September 30, | 2001 | 2000 | | | $ in ‘000’ | $ in ‘000’ | Deferred Income Tax Assets | | | | Bad Debt and customer financing reserves | $ 1,004 | $ 82 | | Inventory reserves | 685 | 314 | | Business restructuring reserves | 632 | - | | Other operating reserves | 536 | 407 | | Postretirement and other benefits | 2,386 | 2,352 | | Net operating loss/ credit carry forwards | 2,538 | 240 | | Other | 636 | 364 | | Valuation allowance | (742) | (197) | Total deferred tax assets | 7,675 | 3,562 | | | | | Deferred Income Tax liabilities | | | | Pension | 1,971 | 2,480 | | Property, plant and equipment | 5 | 417 | | Other | 521 | 734 | Total deferred tax liabilities | $ 2,497 | $ 3,631 |

Keeping in view the above figures, it turned out that the company’s remaining deferred tax assets amount to $ 5.2 billion and since it is a substantial amount the company’s management may however believe that it would be realized based on forecasted taxable income. However, as per FAS # 109, paragraph 17, issued February 1992, whereby it

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