Aspects of Income Tax Reporting – Current Liabilities

The foregoing discussion of income tax reporting has emphasized the issue of accelerated depreciation. This focus is appropriate because the predominant portion of temporary differences between the book and the tax bases of U.S. firms’corporate assets is due to differences in tax and book depreciation.

Tax and book income measurements differ, however, for many other reasons. For example, revenue and expense measurements in areas such as leasing, warranties, debt refinancing, exchanges of assets, and various other areas are treated differently for tax and book purposes. In some cases, the differences result in postponements of taxable income (as with accelerated depreciation). In other cases, however, the different treatments result in earlier recognition of taxable income. As a result, some firms may report deferred tax assets, rather than deferred tax liabilities. Figure 8.4 shows the reasons why the tax and book bases of various assets and liabilities differ for a major U.S. firm. Although further discussion of these other types of temporary differences is too specialized for this text, the basic framework that was used in calculating tax differences due to differences in depreciation methods applies in many other areas.

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