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Computation of deferred taxes under IFRS is slightly different from GAAP. For example, in the United...

Computation of deferred taxes under IFRS is slightly different from GAAP. For example, in the United Kingdom (which follows IFRS), companies use the crystallization approach. An equivalent concept in the United States is “realization.”

The concept underlying this “crystallization” approach is that companies recognize deferred income taxes only if the taxes are expected to crystallize. Therefore, if a liability is deferred indefinitely, then the present value of that liability is zero. No deferred tax liability is recognized if the accumulated deferred tax amount is expected to increase each year, thereby delaying indefinitely the ultimate liquidation of this obligation.

  1. Compare and contrast the theory behind the “crystallization” approach with the inter-period allocation approach used in the U.S.
  2. How might this same concept be applied to the recognition of liability for accounts payable? That is, if accounts payable are expected to increase each year, should the crystallization concept apply to this liability? Why or why not?
  3. How reasonable does this approach seem? Explain.

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ekkarill92 answered 2 months ago
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