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Accounting For Deferred Taxes
Accounting For Deferred Taxes
The need for deferred tax accounting arises because companies often postpone or pre-pays taxes on profits pertaining to a particular period.
not profitable in the future there will be no tax savings to benefit from and therefore accounting for this asset is not justified. If the analysts purpose is forecasting and he seeks to identify the persistent components of FCFF, then it is not appropriate to add back deferred tax changes that are expected to reverse in the near future. In some circumstances, however, a company may be able to consistently defer taxes until a much later date. If a company is growing and has the ability to indefinitely defer tax liability, an analyst adjustment to net income is warranted. Conversely, companies often record expenses for financial reporting purposes (e.g., restructuring charges) that are not deductible for tax purposes. In this instance, current tax payments are higher than reported on the income statement, resulting in a deferred tax asset and a subtraction from net income to arrive at cash flow on the cash flow statement. If the deferred tax assets is expected to reverse (e.g., through tax depreciation deductions) in the near future, the analyst would not want to subtract the deferred tax asset in his cash flow forecast to avoid underestimating future cash flows. On the other hand, if the company is expected to have these charges on a continual basis, a subtraction is warranted to lower the forecast of future cash flows. 1 If a company knows that it will have a tax benefit in the future they will recognize that benefit by accounting for a deferred tax asset. However, if the recognition of the acquired deferred tax benefit results from an identifiable event after its occurrence it would be reported as a reduction of income tax expense for that period.
profits for a period are from its L I ABI L I TI ES Deferred tax liabilities, net (Note 11)
Total Deferred taxes 1 Changes inCash Deferred Free Flow taxes Valuation
profits. It brings investors one step closer to understanding exactly how much of a company's operations (rather than from fiscal savings).
$297,200,000 $228,200,000 $755,800,000 $0 ($527,600,000) ($1,299,100,000) $1,131,200,000 $771,500,000 $176,300,000
$931,500,000 $595,200,000
VIACOM INC 10-K 2003-12-31: Cash Flow 2003/12/31 $663,700,000 2002/12/31 $826,600,000 2001/12/31 $439,400,000 2000/12/31 $442,000,000
PricewaterhouseCoopers MASB 25