SFAS and APB Opinion

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Financial-Accounting

They say FAS No. 96 required deferred asset and liability accounts. In line with the asset-liability approach, it also required the use of future enacted tax rates and adjustment of deferred asset and liability accounts if tax rates changed. APB Opinion No. 11 used only current rates and no change in deferred debit and credit accounts if tax rates changed.

REQUIRED:
(1)Discuss Points of differentiation between SFAS No. 96 and SFAS No. 109

All Business (1993) references that, "Statement no. 109 supersedes Statement no. 96 of the same name, which requires another version of the asset-liability method, as well as Accounting Principles Board Opinion no. 11, also of the same name, which requires the deferred method of interperiod income tax allocation.

Both versions of the asset-liability method are balance-sheet-oriented-deferred tax assets and liabilities are recognized for the tax effects of temporary differences. They differ from the deferred method, which is income-statement-oriented - deferred tax debits and credits are recognized for the tax effects of timing differences.

A major difference between the two asset-liability methods relates to deferred tax assets. Statement no. 96 prohibit recognizing deferred tax assets unless they are realizable by carryback or offset, which was criticized because it leads some companies to report unrealistic amounts - such as zero deferred tax assets - when realization is probable but not by carryback or offset. Statement no. 109 requires recognizing deferred tax assets if realization is more likely than not.

Reference: http://www.allbusiness.com/personal-finance/individual-taxes/363132-1.html

There are several points of differention between SFAS No. 96 and SFAS No. 109; however, both relate to APB Opinion No. 11.

New standards require certain companies companies to:

* Recognize current tax liabilities for the estimated taxes that are payable or refundable on the current year's tax return,

* Record deferred tax liabilities or assets for the estimated future tax effects that are attributable to temporary differences and loss carryforwards,

* Measure current and deferred tax liabilities and assets based on the provisions of enacted tax legislation, without anticipating the effects of future changes in tax laws or rates,

* Ascertain the availability of a deferred tax asset based on the assumption of future income or loss, and

* Develop a valuation allowance account to reduce tax deferred assets, if necessary, to amounts likely to be realized.

* Measure the gross deferred tax liability for taxable temporary differences,

* Compute the gross deferred tax assets for deductible temporary differences,

* Ascertain the gross deferred tax assets for credit carryforwards, and

* Derive a valuation allowance for gross deferred tax assets that probably will not be realized.

The basic journal entry to recognize ...