This 3 page paper examines a case study provided by the student where a company has made an allowance to write of deferred tax asserts. The paper assessing the projections and determines if the level is correct. The bibliography cites 5 sources.
Name of Research Paper File: TS14_TEdeftas.rtf
Unformatted Sample Text from the Research Paper:
has been set at $2 million. However, the accountant has expressed concerns that this is not an appropriate amount. In order for this asset to be used in the
year 2001 the concept assessment is relatively simple, the corporation will need to generate sufficient taxable income to hold against the deferred tax asset. Therefore, the question becomes, is the
corporation going to show a taxable income of $2 million or more in the tax year 2001, if it is not then the valuation is too high. However, if the
company does no generate enough income it will not be able to use these assets. We are told that the $2 million is the amount that is to be used
and this refers to research and development credits. This is the amount the deferred tax asset is being reduced by as the remained is the amount that the company believe
cannot be rleased. In looking at the performance of the company there is a current loss over the last five years of $5.5 million. This has been occurred mainly in
2000 and 2001. The management view appears to be that the losses have been incurred by singular events, rather than ongoing situations. The argument is that any calculation for future
utilisations of the deferred tax should excluded this as they will not be repeated. In looking at the future prospects, the amounts in the adjusted accounts appear to indicate
that the levels of income will increase and that sufficient income after tax is deducted will be produced. However, this may be seen as optimistic and conflicting with the prudence
concept in accounting (Elliott and Elliot, 1998). The company has made a commitment to purchase a new company, which is projecting at creating a $1.7 million profit a year.