The e. U.S. parent accrues the deferred tax liability at a 20 percent tax rate (that is, net of foreign tax credits, foreign tax credit carryforwards, and so forth). An analysis of the net investment in the foreign subsidiary and the related deferred tax liability for year 2 is as follows: Net Investment Balances, beginning of year Earnings and related taxes Translation adjustment and related taxes Balances, end of year $1,200 660 (260) $1,600 Deferred Tax Liability $240 132 (52) $320
f. For year 2, $132 of deferred taxes are charged against earnings, and $52 of deferred taxes are reported in other comprehensive income and accumulated in shareholders' equity. Appendix C BACKGROUND INFORMATION 277. Opinion 11 was issued in 1967. Over the years that followed, it was the frequent subject of numerous criticisms and concerns that focused both on the complexity of the accounting requirements and on the meaningfulness of the results of applying the requirements. 278. In January 1982, the Board added a project to its agenda to reconsider accounting for income taxes, and a task force was appointed to advise the Board during its deliberations on this project. An FASB Research Report, Accounting for Income Taxes: A Review of Alternatives, prepared by Ernst & Whinney, was published in July 1983. The report discusses the accounting and reporting alternatives advanced in the accounting literature on income taxes. 279. The Discussion Memorandum on accounting for income taxes was issued in August 1983, and more than 400 comment letters were received. The Board conducted a public hearing on the Discussion Memorandum in April 1984, and 43 organizations and individuals presented their views at the 3-day hearing. In May 1984, the FASB sponsored three regional meetings to obtain the views of preparers, users, and auditors associated with the financial statements of small companies. 280. Accounting for income taxes was addressed at 20 public Board meetings and at 2 public task force meetings and, in September 1986, the Board issued an Exposure Draft, Accounting for Income Taxes. It proposed an asset and liability approach to account for the effects of income taxes that result from an enterprise's activities during the current and preceding years. The Board received more than 400 comment letters in response to the Exposure Draft. 281. In January 1987, the Board conducted a public hearing on the Exposure Draft. Fifty-one organizations and individuals presented their views at the 3-day hearing. Based on the information received in the comment letters and at the public hearing, the Board reconsidered its proposals in the Exposure Draft at 21 public Board meetings during 1987. 282. FASB Statement No. 96, Accounting for Income Taxes, was issued in December 1987 and the FASB Special Report, A Guide to Implementation of Statement 96 on Accounting for Income Taxes, was issued in March 1989. As issued, Statement 96 was effective for financial statements for fiscal years beginning after December 15, 1988, but the effective date was deferred three times, the last of which was to fiscal years beginning after December 15, 1992. 283. After the issuance of Statement 96, the Board received (a) requests for about 20 different limitedscope amendments to that Statement, (b) requests to change the criteria for recognition and measurement of deferred tax assets to anticipate, in certain circumstances, the tax consequences of future income, and (c) requests to reduce the complexity of scheduling the future reversals of temporary differences and considering hypothetical tax-planning strategies. The Board considered the requests to amend Statement 96 at 41 public Board meetings and 3 Implementation Group meetings starting in March 1989. 284. In June 1991, the Board issued an Exposure Draft, Accounting for Income Taxes. The Exposure Draft retained the asset and liability approach for financial accounting and reporting for income taxes as
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in Statement 96, but reduced the complexity of the standard and changed the criteria for recognizing and measuring deferred tax assets. During the comment period for the Exposure Draft, a limited-scope field test of the proposals in the Exposure Draft was completed, and an FASB-prepared seminar that explained and analyzed the proposals was presented by Board and staff members at nine locations throughout the country. 285. The Board received more than 250 comment letters in response to the Exposure Draft. In October 1991, the Board held a 3-day public hearing on the Exposure Draft, and 25 organizations and individuals presented their views. Based on the information received in the comment letters and at the public hearing, the Board reconsidered its proposals in the Exposure Draft at 12 public Board meetings. The basis for the Board's conclusions, including reasons for changes made to the provisions of the Exposure Draft, is set forth in Appendix A. Appendix D AMENDMENTS TO EXISTING PRONOUNCEMENTS 286. This Statement supersedes the following pronouncements: a. Accounting Research Bulletin No. 44 (Revised), Declining-balance Depreciation b. APB Opinion No. 1, New Depreciation Guidelines and Rules c. APB Opinion No. 11, Accounting for Income Taxes d. APB Opinion No. 24, Accounting for Income Taxes--Investments in Common Stock Accounted for by the Equity Method (Other than Subsidiaries and Corporate Joint Ventures) e. FASB Statement No. 31, Accounting for Tax Benefits Related to U.K. Tax Legislation concerning Stock Relief f. FASB Statement No. 96, Accounting for Income Taxes g. FASB Statement No. 100, Accounting for Income Taxes--Deferral of the Effective Date of FASB Statement No. 96 h. FASB Statement No. 103, Accounting for Income Taxes--Deferral of the Effective Date of FASB Statement No. 96
i. FASB Statement No. 108, Accounting for Income Taxes--Deferral of the Effective Date of FASB Statement No. 96 j. AICPA Accounting Interpretations 4, "Change in Method of Accounting for Investment Credit," and 6, "Investment Credit in Consolidation," of APB Opinion No. 4, Accounting for the "Investment Credit" k. AICPAAccounting Interpretations of APB Opinion No. 11, Accounting for Income Taxes l. AICPA Unofficial Accounting Interpretations 13, "Subchapter S Corporations," and 16, "EPS for Extraordinary Items," of APB Opinion No. 15, Earnings per Share m. AICPAAccounting Interpretations of APB Opinion No. 23, Accounting for Income Taxes-- Special Areas n. FASB Interpretation No. 22, Applicability of Indefinite Reversal Criteria to Timing Differences o. FASB Interpretation No. 25, Accounting for an Unused Investment Tax Credit p. FASB Interpretation No. 29, Reporting Tax Benefits Realized on Disposition of Investments in Certain Subsidiaries and Other Investees q. FASB Interpretation No. 32, Application of Percentage Limitations in Recognizing Investment Tax Credit r. FASB Technical Bulletin No. 81-2, Accounting for Unused Investment Tax Credits Acquired in a Business Combination Accounted for by the Purchase Method s. FASB Technical Bulletin No. 83-1, Accounting for the Reduction in the Tax Basis of an Asset Caused by the Investment Tax Credit t. FASB Technical Bulletin No. 84-2, Accounting for the Effects of the Tax Reform Act of 1984 on Deferred Income Taxes Relating to Domestic International Sales Corporations u. FASB Technical Bulletin No. 84-3, Accounting for the Effects of the Tax Reform Act of 1984 on Deferred Income Taxes of Stock Life Insurance Enterprises v. FASB Technical Bulletin No. 86-1, Accounting for Certain Effects of the Tax Reform Act of 1986. 287. Other pronouncements issued by the Accounting Principles Board and the Financial Accounting Standards Board refer to Opinion 11, Opinion 24, or Statement 96 or use the term timing differences as defined in Opinion 11. All such references appearing in paragraphs that establish standards or the scope
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of a pronouncement are hereby amended to refer instead to FASB Statement No. 109, Accounting for Income Taxes,19 or to use the term temporary differences. 288. This Statement amends the following pronouncements: a. Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins. The following is added to the end of paragraph 5 of Chapter 9C: The declining-balance method is one that meets the requirements of being systematic and rational.2 If the expected productivity or revenue-earning power of the asset is relatively greater during the earlier years of its life, or where maintenance charges tend to increase during later years, the decliningbalance method may provide the most satisfactory allocation of cost. That conclusion also applies to other methods, including the sum-of-the-years'-digits method, that produce substantially similar results.
2Accounting
which a tax benefit has not been recognized for financial reporting. c. APB Opinion No. 6, Status of Accounting Research Bulletins. Paragraphs 2023 and footnotes 7 and 8 are deleted. d. APB Opinion No. 16, Business Combinations. The last sentence in paragraph 87 is replaced by the following: The tax basis of an asset or liability shall not be a factor in determining its fair value. The last sentence in paragraph 88 is replaced by the following: FASB Statement No. 109, Accounting for Income Taxes, paragraph 30, addresses accounting for the deferred tax consequences of the differences between the assigned values and the tax bases of assets and liabilities of an enterprise acquired in a purchase business combination. Paragraph 89 is deleted. e. APB Opinion No. 17, Intangible Assets. The last sentence in paragraph 30 is deleted. f. APB Opinion No. 23, Accounting for Income Taxes--Special Areas. In paragraph 9, all words following equity method are deleted and replaced by results in a temporary difference. Paragraph 10 is replaced by the following: Temporary Difference. The Board believes it should be presumed that all undistributed earnings of a subsidiary will be transferred to the parent company. Accordingly, the undistributed earnings of a subsidiary included in consolidated income should be accounted for as a temporary difference unless the tax law provides a means by which the investment in a domestic subsidiary can be recovered tax free. However, for reasons described in FASB Statement No. 109, Accounting for Income Taxes, a deferred tax liability is not recognized for (a) an excess of the amount for financial reporting over the tax basis of an investment in a foreign subsidiary that meets
Terminology Bulletin No. 1, Review and Rsum, paragraph 56.
Paragraphs 1113 of Chapter 9C are replaced by the following: 11. Refer to FASB Statement No. 109, Accounting for Income Taxes. Chapter 10B is deleted. Paragraph 8 of Chapter 11B is deleted. b. APB Opinion No. 2, Accounting for the "Investment Credit." Paragraph 16 is replaced by the following: An investment credit should be reflected in the financial statements to the extent it has been used as an offset against income taxes otherwise currently payable or to the extent its benefit is recognizable under the provisions of FASB Statement No. 109, Accounting for Income Taxes. Refer to paragraph 48 of Statement 109 for required disclosures related to (a) tax credit carryforwards for tax purposes and (b) tax credit carryforwards for
19Except as in paragraph 288(dd).
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the criteria in paragraph 12 of this Opinion and (b) undistributed earnings of a domestic subsidiary that arose in fiscal years beginning on or before December 15, 1992 and that meet the criteria in paragraph 12 of this Opinion. The criteria in paragraph 12 of this Opinion do not apply to undistributed earnings of domestic subsidiaries that arise in fiscal years beginning after December 15, 1992, and a deferred tax liability shall be recognized if the undistributed earnings are a taxable temporary difference. Footnotes 3 and 4 are deleted. Paragraph 11 is replaced by the following: A deferred tax asset shall be recognized for an excess of the tax basis over the amount for financial reporting of an investment in a subsidiary in accordance with the requirements of paragraph 34 of Statement 109. The last sentence of paragraph 13 is replaced by the following: If a parent company recognizes a deferred tax liability for the temporary difference arising from its equity in undistributed earnings of a subsidiary and subsequently reduces its investment in the subsidiary through a taxable sale or other transaction, the amount of the temporary difference and the related deferred tax liability will change. An investment in common stock of an investee (other than a subsidiary or corporate joint venture) may change so that the investee becomes a subsidiary because the investor acquires additional common stock, the investee acquires or retires common stock, or other transactions affect the investment. A temporary difference for the investor's share of the undistributed earnings of the investee prior to the date it becomes a subsidiary shall continue to be treated as a temporary difference for which a deferred tax liability shall continue to be recognized to the extent that dividends from the subsidiary do not exceed the parent company's share of the subsidiary's earnings subsequent to the date it became a subsidiary. Paragraph 14 is replaced by the following: Disclosure. Statement 109 specifies the requirements for financial statement disclosures.
Footnote 6 is deleted. In the second sentence in paragraph 21, permanent differences is replaced with events that do not have tax consequences. The first and second sentences of paragraph 23 are deleted. The first and second sentences in footnote 9 are deleted. The third sentence of paragraph 23 is replaced by the following: As described in Statement 109, a savings and loan association9 should not provide deferred taxes on taxable temporary differences related to bad-debt reserves for tax purposes that arose in tax years beginning before December 31, 1987 (the base-year amount). Paragraph 24 is replaced by the following: Disclosure. Statement 109 specifies the requirements for financial statement disclosures. Footnote 10 is deleted. g. APB Opinion No. 25, Accounting for Stock Issued to Employees. In the second sentence of paragraph 17, (1) are timing differences is replaced by result in temporary differences and (2) (APB Opinion No. 11, paragraphs 34 to 37) is deleted and in accordance with the provisions of FASB Statement No. 109, Accounting for Income Taxes is added to the end of that sentence. h. APB Opinion No. 28, Interim Financial Reporting. In footnote 2, (see APB Opinion No. 11, paragraph 63) is replaced by (refer to FASB Statement No. 109, Accounting for Income Taxes, paragraph 47). In the first sentence of paragraph 20, (1) (in the event carryback of such losses is not possible) is deleted and (2) realization is assured beyond any reasonable doubt (paragraph 45 of APB Opinion No. 11) is replaced by the tax benefits are expected to be (a) realized during the year or (b) recognizable as a deferred tax asset at the end of the year in accordance with the provisions of Statement 109. In the second and third sentences of paragraph 20, assured beyond reasonable doubt is replaced by more likely than not. In footnote 3, as is provided for in annual periods in paragraph 45 of APB Opinion No. 11 is deleted.
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The last sentence in paragraph 20 is replaced by the following: The tax effect of a valuation allowance expected to be necessary for a deferred tax asset at the end of the year for originating deductible temporary differences and carryforwards during the year should be included in the effective tax rate. The effect of a change in the beginning-of-the-year balance of a valuation allowance as a result of a change in judgment about the realizability of the related deferred tax asset in future years shall not be apportioned among interim periods through an adjustment of the effective tax rate but shall be recognized in the interim period in which the change occurs. The effects of new tax legislation shall not be recognized prior to enactment. The tax effect of a change in tax laws or rates on taxes currently payable or refundable for the current year shall be reflected after the effective dates prescribed in the statutes in the computation of the annual effective tax rate beginning no earlier than the first interim period that includes the enactment date of the new legislation. The effect of a change in tax laws or rates on a deferred tax liability or asset shall not be apportioned among interim periods through an adjustment of the annual effective tax rate. The tax effect of a change in tax laws or rates on taxes payable or refundable for a prior year shall be recognized as of the enactment date of the change as tax expense (benefit) for the current year. i. APB Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. In paragraph 7, APB Opinion No. 11, Accounting for Income Taxes, paragraphs 45 and 61 is replaced by FASB Statement No. 109, Accounting for Income Taxes, paragraph 37. j. AICPAAccounting Interpretations of APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. In the fourth sentence of the fifth paragraph of the interpretation section of Interpretation 1, the second half of the sentence beginning with ; for example is deleted.
k. AICPAAccounting Interpretations of APB Opinion No. 25, Accounting for Stock Issued to Employees. In the last sentence of the last paragraph, the reference to paragraph 89 of Opinion 16 is deleted. l. FASB Statement No. 12, Accounting for Certain Marketable Securities. The last sentence of paragraph 22 is deleted. m. FASB Statement No. 13, Accounting for Leases. In paragraph 47, , as prescribed in APB Opinion No. 11, "Accounting for Income Taxes," paragraphs 57, 59, and 64 is deleted. n. FASB Statement No. 16, Prior Period Adjustments. Paragraph 11 is replaced by the following: An item of profit and loss related to the correction of an error in the financial statements of a prior period3 shall be accounted for and reported as a prior period adjustment4 and excluded from the determination of net income for the current period. Footnotes 3 and 4 are renumbered 4 and 3, respectively, and their positions are reversed. Footnote 5 is deleted. In the first sentence of paragraph 13, (except for the effects of retroactive tax legislation) is added after taxes. In the third sentence of paragraph 13, new retroactive tax legislation or is deleted. o. FASB Statement No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies. In paragraph 61, by the deferred method, as described in APB Opinion No. 11, "Accounting for Income Taxes," is replaced by as described in FASB Statement No. 109, Accounting for Income Taxes,. In the first sentence of paragraph 62, the amount of income taxes otherwise payable shall not be taken into account is replaced by taxable income in future years shall be considered in determining whether it is more likely than not that the tax benefits of deferred tax assets will not be realized. The second sentence is deleted. In the third sentence, (1) Accordingly, the is replaced by However, the tax benefit of the, (2) shall be accounted for as a permanent difference in is replaced by shall not be recognized until, and (3) ; it shall not be anticipated by recognizing interaction is deleted.
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p. FASB Statement No. 37, Balance Sheet Classification of Deferred Income Taxes. Paragraph 4 and the preceding caption and related footnotes are replaced by the following: 4. A temporary difference is related to an asset or liability if reduction* of the asset or liability causes the temporary difference to reverse. A deferred tax liability or asset for a temporary difference that is related to an asset or liability shall be classified as current or noncurrent based on the classification of the related asset or liability. A deferred tax liability or asset for a temporary difference not related to an asset or liability because (a) there is no associated asset or liability or (b) reduction of an associated asset or liability will not cause the temporary difference to reverse shall be classified based on the expected reversal date of the specific temporary difference. Such classification disregards any additional temporary differences that may arise and is based on the criteria used for classifying other assets and liabilities.
*As used here, the term reduction includes amortization, sale, or other realization of an asset and amortization, payment, or other satisfaction of a liability.
In paragraphs 2325, references to deferred income tax credits are changed to deferred tax liability. In the first sentence of paragraph 24, do is replaced by does. Paragraphs 2629, the captions preceding paragraphs 26 and 28, and footnotes 2 and 3 are deleted. q. FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. In the fourth sentence of paragraph 2, benefits of preacquisition net operating loss carryforwards is replaced by effects of (a) temporary differences and carryforwards of the acquired enterprise that exist at the acquisition date and (b) income tax uncertainties related to the acquisition (for example, an uncertainty related to the tax basis of an acquired asset that will ultimately be agreed to by the taxing authority). The last sentence of paragraph 2 is deleted. In the first sentence of paragraph 5, tax benefit of a loss carryforward2 is replaced by income tax effects referred to in paragraph 2 of this Statement.2 The first sentence of footnote 2 is replaced by the following: Those potential income tax effects shall be accounted for in accordance with the provisions of FASB Statement No. 109, Accounting for Income Taxes. The second and third sentences of footnote 2 are deleted. r. FASB Statement No. 52, Foreign Currency Translation. In paragraph 48, deferred income taxes and is deleted from the table in both places. s. FASB Statement No. 57, Related Party Disclosures. The following item is added to the end of paragraph 2: (e) The information required by paragraph 49 of FASB Statement No. 109, Accounting for Income Taxes. t. FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. Paragraph 55 is replaced by the following: Except as noted in paragraph 59, a deferred tax liability or asset shall be recognized for the deferred tax consequences of temporary differences in accordance with FASB Statement No. 109, Accounting for Income Taxes.
Paragraphs 17 and 18, the preceding caption, and footnote 1 are deleted. In paragraph 19, the first and second references to deferred income taxes are replaced by The deferred tax liability or asset and deferred tax liability or asset, respectively. In the illustration at the end of paragraph 20, Accumulated Deferred Income Tax Debits Related to Accounting Change . . . $2,357,500 is replaced by Deferred Tax Asset (40 percent is the enacted tax rate--no valuation allowance deemed necessary) . . . $2,050,000. In the first sentence of paragraph 21, deferred income taxes do is replaced by deferred tax asset does. In the second and third sentences, deferred income tax debits is replaced by deferred tax asset. At the end of the third sentence, ($261,944) is replaced by ($227,778). In the second of sentence paragraph 22, deferred income tax credits is replaced by temporary differences. In the fourth and fifth sentences, deferred income tax credits is replaced by deferred tax liability and deferred tax liabilities, respectively.
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Paragraphs 5658 and footnote 8 are deleted. The first and second sentences of paragraph 59 are deleted. The third sentence of paragraph 59 is replaced by the following: As described in Statement 109, a life insurance enterprise should not provide deferred taxes on taxable temporary differences related to "policyholders' surplus" that arose in fiscal years beginning on or before December 15, 1992. Paragraph 60(i) is replaced by the following: Statement 109 specifies the requirements for financial statement disclosures about income taxes. Paragraph 60 (j) is deleted. u. FASB Statement No. 69, Disclosures about Oil and Gas Producing Activities. In the second sentence of paragraph 26 and the second sentence of paragraph 30(c), permanent differences is deleted and tax deductions is inserted before tax credits and allowances. In paragraphs 40 and 41 of Appendix A, permanent differences is replaced by tax deductions. v. FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Paragraph 18 is replaced by the following: A deferred tax liability or asset shall be recognized for the deferred tax consequences of temporary differences in accordance with FASB Statement No. 109, Accounting for Income Taxes. Footnote 12 is deleted. In paragraph 46, (1) as amended is inserted after Statement 16 and (2) , adjustments that result from realization of income tax benefits of preacquisition operating loss carryforwards of purchased subsidiaries, is deleted. w. FASB Statement No. 89, Financial Reporting and Changing Prices. In paragraph 96, Deferred income tax chargesa--Offsets to prospective monetary liabilities and Deferred income tax creditsa--Cash requirements will not vary mate-
rially due to changes in specific prices. are replaced by Deferred tax assets and Deferred tax liabilitiesa, respectively. x. FASB Statement No. 90, Regulated Enterprises--Accounting for Abandonments and Disallowances of Plant Costs. The fifth and sixth sentences of paragraph 14 are replaced by the following: Under FASB Statement No. 109, Accounting for Income Taxes, the tax effects of temporary differences are measured based on enacted tax laws and rates and are recognized based on specified criteria. y. FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods. The following sentence is inserted after the second sentence in paragraph 8: It also includes the effect of any valuation allowance expected to be necessary at the end of the year for deferred tax assets related to originating deductible temporary differences and carryforwards during the year. Paragraph 14 is replaced by the following: Recognition of the tax benefit of a loss. Paragraph 20 of Opinion 28 (as amended by Statement 109) provides that a tax benefit is recognized for a loss that arises early in a fiscal year if the tax benefits are expected to be (a) realized during the year or (b) recognizable as a deferred tax asset at the end of the year in accordance with the provisions of Statement 109. Paragraph 17(e) of Statement 109 requires that a valuation allowance be recognized if it is more likely than not that the tax benefit of some portion or all of a deferred tax asset will not be realized. Those limitations shall be applied in determining the estimated tax benefit of an "ordinary" loss for the fiscal year, used to determine the estimated annual effective tax rate described in paragraph 8 above, and the year-to-date tax benefit of a loss. Footnotes 911 are deleted. Paragraph 15 is replaced by the following: Reversal of taxable temporary differences. A deferred tax liability related to existing taxable temporary differences is a source of evidence for recognition of a tax benefit when
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(a) an enterprise anticipates an "ordinary" loss for the fiscal year or has a year-to-date "ordinary" loss in excess of the anticipated "ordinary" loss for the fiscal year, (b) the tax benefit of that loss is not expected to be realized during the year, and (c) recognition of a deferred tax asset for that loss at the end of the fiscal year is expected to depend on taxable income from the reversal of existing taxable temporary differences (that is, a higher valuation allowance [paragraph 17(e) of Statement 109] would be necessary absent the existing taxable temporary differences). If the tax benefit relates to an estimated "ordinary" loss for the fiscal year, it shall be considered in determining the estimated annual effective tax rate described in paragraph 8 above. If the tax benefit relates to a year-todate "ordinary" loss, it shall be considered in computing the maximum tax benefit that shall be recognized for the year-to-date. Footnotes 1214 are deleted. In paragraph 16, the following sentence is inserted after the first sentence: Paragraph 20 of Opinion 28 (as amended) excludes the effects of changes in judgment about beginning-of-year valuation allowances and effects of changes in tax laws or rates from the estimated annual effective tax rate calculation. The reference to Paragraph 52 of APB Opinion No. 1118 in the third sentence is replaced by Paragraphs 3538 of Statement 109. The fourth sentence and footnote 18 are deleted. In the first sentence of paragraph 18, shall not be recognized until it is realized or realization is assured beyond any reasonable doubt is replaced by shall be recognized when the tax benefit of the loss is expected to be (a) realized during the year or (b) recognizable as a deferred tax asset at the end of the year in accordance with the provisions of Statement 109. The second sentence of paragraph 18 is deleted. The third sentence of paragraph 18 is replaced by the following: Realization would appear to be more likely than not if future taxable income from (ordinary) income during the current year is ex-
pected based on an established seasonal pattern of loss in early interim periods offset by income in later interim periods.19 In footnote 19, paragraph 47 of APB Opinion No. 11 (see Appendix A, paragraph 31) and is deleted. The fourth sentence in paragraph 18 is replaced by the following: If recognition of a deferred tax asset at the end of the fiscal year for all or a portion of the tax benefit of the loss depends on taxable income from the reversal of existing taxable temporary differences, refer to paragraph 15 above. In the fifth sentence, assured beyond any reasonable doubt is replaced by more likely than not in all three places. Paragraph 20 is replaced by the following: Paragraph 37 of Statement 109 requires that the manner of reporting the tax benefit of an operating loss carryforward recognized in a subsequent year generally is determined by the source of the income in that year and not by (a) the source of the operating loss carryforward or (b) the source of expected future income that will result in realization of a deferred tax asset for the operating loss carryforward. The tax benefit is allocated first to reduce tax expense from continuing operations to zero with any excess allocated to the other source(s) of income that provides the means of realization, for example, extraordinary items, discontinued operations, and so forth. That requirement also pertains to reporting the tax benefit of an operating loss carryforward in interim periods. The tax benefit of an operating loss carryforward from prior years shall be included in the effective tax rate computation if the tax benefit is expected to be realized as a result of "ordinary" income in the current year. Otherwise, the tax benefit shall be recognized in the manner described above in each interim period to the extent that income in the period and for the year to date is available to offset the operating loss carryforward or, in the case of a change in judgment about realizability of the related deferred tax asset in future years, the effect shall be recognized in the interim period in which the change occurs.
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Footnotes 2123 are deleted. Paragraph 23 is replaced by the following: Paragraph 20 of Opinion 28 (as amended by Statement 109) sets forth the requirements for recognition of the tax effects of a change in tax laws or rates. That paragraph refers to effective dates prescribed in the statutes. Paragraph 24 below describes the determination of when new legislation becomes effective. Footnote 25 is deleted. In the assumed facts for the examples in Appendix C, references in paragraphs 41, 43, 48, 49, 65, and 68 to permanent differences are replaced by references to events that do not have tax consequences. In the second sentence of the last subparagraph of paragraph 43, assured of future realization beyond any reasonable doubt at year-end is replaced by recognizable at the end of the current year in accordance with the provisions of Statement 109. The third and fourth sentences of that subparagraph are deleted. The third sentence of paragraph 46 is replaced by the following: Established seasonal patterns provide evidence that realization in the current year of the tax benefit of the year-to-date loss and of anticipated tax credits is more likely than not. The third sentence of paragraph 47 is replaced by the following: There is no established seasonal pattern and it is more likely than not that the tax benefit of the year-to-date loss and the anticipated tax credits will not be realized in the current or future years. In footnote *, realization of is deleted and assured beyond any reasonable doubt is replaced by expected to be (a) realized during the current year or (b) recognizable as a deferred tax asset at the end of the current year in accordance with the provisions of Statement 109. In the third subparagraph of paragraph 49, If realization of the tax benefit of the loss and realization of tax credits were assured beyond any reasonable doubt is replaced by If there is a
recognizable tax benefit for the loss and the tax credits pursuant to the requirements of Statement 109. In the last sentence of paragraph 49, assured beyond any reasonable doubt is replaced by expected to be (a) realized during the current year or (b) recognizable as a deferred tax asset at the end of the current year in accordance with the provisions of Statement 109. The third sentence of paragraph 50 is replaced by the following: The full tax benefit of the anticipated "ordinary" loss and the anticipated tax credits will be realized by carryback. In paragraph 51, the third and fourth sentences are replaced by the following: The full tax benefit of the anticipated "ordinary" loss and the anticipated tax credits will be realized by carryback. The full tax benefit of the maximum year-to-date "ordinary" loss can also be realized by carryback. In the first sentence of paragraph 52, (1) realization of, nor realization of, and assured beyond any reasonable doubt are deleted, and (2) nor is added directly before, and recognizable pursuant to Statement 109 is added directly after, anticipated tax credits were. In the third sentence of paragraphs 53 and 54, (1) Realization of is replaced by It is more likely than not that, (2) is assured beyond any reasonable doubt only to the extent is replaced by in excess, and (3) will not be realized is added to the end of each sentence. In the second sentence of paragraph 55, are not assured beyond any reasonable doubt is replaced by exclusive of reversing temporary differences are unlikely. In the third and fourth sentences of paragraph 55, (1) credits is replaced by liabilities and (2) timing differences is replaced by existing net taxable temporary differences. In the fifth sentence of paragraph 55, (refer to paragraph 15 of this Interpretation) is added after to be used. In the computation at the end of paragraph 55, (1) credits is replaced by liabilities and (2) amortized is replaced by settled.
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The third sentence of paragraph 58 is replaced by the following: The loss cannot be carried back, and available evidence indicates that a valuation allowance is needed for all of the deferred tax asset. In the fourth sentence of paragraph 58, (1) realization of is deleted and (2) not assured beyond any reasonable doubt except is replaced by recognized only. Paragraphs 5961 and the heading Using a Prior Year Operating Loss Carryforward are deleted. In the fifth sentence of paragraph 66, (1) Realization of is replaced by It is expected that and (2) is not assured beyond any reasonable doubt is replaced by will not be recognizable as a deferred tax asset at the end of the current year pursuant to Statement 109. Paragraph 70 and all references thereto are deleted. z. FASB Interpretation No. 31, Treatment of Stock Compensation Plans in EPS Computations. In the last sentence of footnote 1, as described in paragraph 36 of APB Opinion No. 11, Accounting for Income Taxes is deleted. aa. FASB Technical Bulletin No. 79-9, Accounting in Interim Periods for Changes in Income Tax Rates. The last sentence in paragraph 3 is deleted. bb. FASB Technical Bulletin No. 79-16 (Revised), Effect of a Change in Income Tax Rate on the Accounting for Leveraged Leases. In paragraph 4, paragraph 63 of APB Opinion No. 11, Accounting for Income Taxes is replaced by paragraph 47 of FASB Statement No. 109, Accounting for Income Taxes. cc. FASB Technical Bulletin No. 82-1, Disclosure of the Sale or Purchase of Tax Benefits through Tax Leases. Paragraph 5 is replaced by the following: Paragraph 47 of FASB Statement No. 109, Accounting for Income Taxes, requires that (a) the reported amount of income tax expense attributable to continuing operations for the year be reconciled to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations
and (b) the estimated amount and the nature of each significant reconciling ite...