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Geek mode

Just copy-pasting some random stuff:

All events test for determination of accrual of contingent expenses for tax purposes –

The Supreme Court reversed the decision of the lower courts and faulted the taxpayer for not exercising due diligence in asking the auditor/lawyer for the fees payable for the services rendered. The Court ruled that the “all event test” requires that the right to income or liability be fixed and the amount of such income or liability is determined with reasonable accuracy. The test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. The all event test is satisfied where computation remains uncertain, if its basis is unchangeable; where a computation maybe unknown, but is not as much as unknowable, within the taxable year. The amount of liability does not have to be determined exactly but only with “reasonable accuracy”. The term “reasonable accuracy” implies something less than an exact or complete accurate amount.

http://www.punongbayan-araullo.com/pnawebsite/pnahome.nsf/section_docs/IB227W_6-3-07
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There are assets or liabilities which, by their nature, make it relatively easy for companies to determine whether there are temporary differences that would result in deferred tax assets or liabilities. Examples include:

• possible deferred tax assets resulting from a receivable’s allowance for doubtful accounts where the provision for impairment losses has been reflected in the income statement but bad debts are still to be claimed for future tax purposes; and

• deferred tax liabilities arising from capitalization of borrowing costs as part of a fixed asset’s cost for financial reporting purposes. For tax purposes, borrowing costs have been claimed outright as deductible expense.

There are also assets or liabilities where transactions seem to have no tax consequences and, therefore, companies run the risk of not setting up the proper deferred tax for these temporary differences.

A common example would be the so-called “day one gains or losses” on non-interest bearing receivables or payables.

Under PAS 39, Financial Instruments: Recognition and Measurement, financial assets or liabilities should be recognized at inception at their fair values. Accordingly, for receivables or payables which do not bear interest or with off-market interest rates, their fair values are lower than their face amounts (due to the time value of money), giving rise to “day one gains or losses.”

Since “day one” gains on non-interest bearing payables are not taxable, interest expense accreting on the payable would also be non-deductible for income tax purposes.

Consequently, companies have a tendency to treat these as permanent differences and no deferred tax is set up.

http://www.sgv.ph/%E2%80%9Cavoid-surprises-on-deferred-income-taxes%E2%80%9D-by-lucy-l-chan-and-armin-f-tulio-october-24-2011/

http://www.punongbayan-araullo.com/pnawebsite/pnahome.nsf/section_docs/RD382C_18-9-12

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