Question

Sub: Advanced Federal Taxation

Why do you feel that the government allows gains or losses to be deferred in these situations?

Answer 1

The Covid-19 situation may require restructuring of operations, modification of incentive plans such as share-based arrangements by relaxing certain performance conditions, additional benefits to employees, etc. Entities will need to evaluate the impact of such plans on their financial reporting. Due to these conditions, loan covenants of borrowers may be at risk of default. Such entities may need to obtain waivers from lenders or renegotiate the covenants, else long-term borrowings will get reclassified as current liabilities becoming payable on demand.

The implications for financial statements include not only the measurement of assets and liabilities but also disclosure and possibly an entity’s ability to continue as a going concern. The implications, including the indirect effects from lower economic activity, should be considered by all entities, not just those in the territories most significantly affected.