Describe the basic principles of the asset-liability method

Expert Solution

Asset Liability Method : It is a method used to account for income taxes that recognizes the amount of taxes payable or refundable for the current year and records deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns.

Companies apply the following basic principles in accounting for income taxes at the date of financial statements :-

1) Recognize a current tax liability or asset for the estimated taxes payable or refundable on the tax return for the current year.

2) Recognize a deferred tax liability or asset for the estimated future tax effects attributable to temporary differences and carryforwards using the enacted tax rate.

3) Base the measurement of current and deferred tax liabilities and assets on provisions of the enacted tax law.

4) Reduce the measurement of deferred tax assets, if necessary, by the amount of any tax benefits that, based on available evidence, companies do not expect to realize.

ekkarill92 answered 1 year ago

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