some accountants believe that deferred taxes should bot be recognized for certain temporary differences. what us...

some accountants believe that deferred taxes should bot be recognized for certain temporary differences. what us the conceptual basis fir this argument?

Expert Solution

Answer.

The basic principle for recognition is that a deferred tax asset or liability is recognised in respect of all timing differences, and never recognised in respect of permanent differences. The only explicit modification of the requirement to recognise deferred tax on timing differences is in respect of some deferred tax assets.

The general principle is that a deferred tax liability is recognised for all taxable temporary differences. There are three exceptions to the requirement to recognise a deferred tax liability, as follows:

liabilities arising from initial recognition of goodwill.
liabilities arising from the initial recognition of an asset/liability other than in a business combination which, at the time of the transaction, does not affect either the accounting or the taxable profit.
liabilities arising from temporary differences associated with investments in subsidiaries, branches, and associates, and interests in joint arrangements, but only to the extent that the entity is able to control the timing of the reversal of the differences and it is probable that the reversal will not occur in the foreseeable future.

The general principle is that a deferred tax liability is recognised for all taxable temporary differences. There are three exceptions to the requirement to recognise a deferred tax liability, as follows:

liabilities arising from initial recognition of goodwill.
liabilities arising from the initial recognition of an asset/liability other than in a business combination which, at the time of the transaction, does not affect either the accounting or the taxable profit.
liabilities arising from temporary differences associated with investments in subsidiaries, branches, and associates, and interests in joint arrangements, but only to the extent that the entity is able to control the timing of the reversal of the differences and it is probable that the reversal will not occur in the foreseeable future.

ekkarill92 answered 1 year ago

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