The FASB has carefully avoided the issue of discounting deferred taxes. SFAS No. 109 , “ Accounting for Income Taxes,” states: a deferred tax liability or asset should be recognized for the deferred tax consequences of temporary differences and operating loss or tax credit carry forwards. . . . Under the requirements of this Statement: . . . Deferred tax liabilities and assets are not discounted.

a. Assuming that the firm’s deferred tax liabilities exceed its deferred tax assets, select the approach to measurement, discounting, or non-discounting that is best supported by the qualitative characteristics of SFAC No. 2 by placing an X in the evaluation matrix under the measurement approach selected. For example, if you feel that discounting has higher representational faithfulness, put an X under column 2 beside representational faithfulness. Column 3 is provided for cases for which a given concept is not applicable.

b. Discuss the reasons for your evaluations.
c. Present arguments supporting the discounting of deferred taxes.
d. Present arguments opposing the discounting of deferredtaxes.

  • CreatedDecember 17, 2014
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