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INTER-PERIOD TAX ALLOCATION OR BASIS ADJUSTMENT?

Wm. L. Raby¹; Robert D. Neubig²

¹ Associate Professor of Accounting at Ohio University, Athens, Ohio. 1 · ² Associate Professor of Accounting at Ohio University. 2

Tax allocation procedures used today produce inconsistent treatment on the balance sheet. When the asset's accounting basis is greater than the tax basis as the result of differences in timing, a credit must be carried on the balance-sheet. This credit has variously taken the form of a liability, a reduction in a fixed asset , a reduction in a deferred charge, or even an allocation of retained earnings. As previously mentioned, the major difference has been that due to depreciation. Here, the general practice has been to show the resulting credit as a non-current liability. To many accountants, this treatment is a distortion of the facts. At the moment of liability recognition for accounting purposes, no liability seems to them to exist. The liability may never come into existence, or its amount may be greater or less than the amount originally booked. An acceptable, but not widely followed, alternative has been to credit the accumulated depreciation rather than the liability account in these circumstances.

DOI

10.2308/tar-7104473

Volume

38 (3)

Pages

568-576

Language

en

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