Chapter 16, Problem 16.8BYP

1.

To determine

Balance Sheet Classification

In the balance sheet all deferred tax liabilities, deferred tax assets and valuation allowances are treated as non-current items. If the deferred tax accounts belong to the same tax jurisdictions then, they are netted against each other and shown as a single number (after the adjustments) in the balance sheet. Whereas if the deferred tax accounts belong to the different tax jurisdictions then, they should not be offset.

Deferred tax liability

When the Income Tax Expense account i.e. the estimated income tax amount is less than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be credited to Deferred Tax Liability account.

Deferred tax asset

When the Income Tax Expense account i.e. the estimated income tax amount is more than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be debited to Deferred Tax Asset account.

Valuation Allowance

Valuation allowance is that financial item that offsets the deferred tax assets either fully or partly as deferred tax assets are more likely not realizable.

Temporary Difference

Temporary difference refers to the difference of one income recognized by the tax rules and accounting rules of a company in different periods. Consequently the difference between the amount of assets and liabilities reported in the financial reports and the amount of assets and liabilities as per the company’s tax records, is known as temporary difference.

To explain:  The reason of deferred taxes being reported as both asset and liability- case for Company F 2013.

2.

To determine

To explain: The two amounts reported in the balance sheet.

3.

To determine

To explain: If there is a need for Company F to record a valuation allowance for its deferred tax assets.