11 - implies that these costs are more persistent in...

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Restructuring costs typically fall into three general categories. (i) accrual of liabilities for items, such as employee severance payments, (ii) gains or losses from the write-off of assets, such as plant assets and goodwill, and (iii) other restructuring and exit costs including legal fees and costs to cancel contracts such as leases. 2 These restructuring costs are expensed in the current period despite the fact that the impaired assets may not be formally written off and the employees not paid their severance until future periods. In any event, most analysts treat restructuring costs as transitory (one-time occurrences). Accordingly, while restructuring costs should impact the analysis, they typically do not affect the analysis to the same degree as more persistent items such as recurring revenues and expenses. 3 Some companies regularly report restructuring costs. Many analysts treat these costs as recurring operating expenses and do not consider them to be transitory items. This treatment
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Unformatted text preview: implies that these costs are more persistent in nature. 4 Negative expense typically implies that an accrual in one or more previous year(s) is overstated and the company is reversing the overstatement in the current year. As a result, the previous years expense was overstated, thus underestimating profit for that year. Deferred tax liabilities increase when taxable income is less than financial reporting income (that which is reported to shareholders). The most common reason this occurs is because companies use an accelerated depreciation method for tax purposes that results in a lower taxable income in the earlier years of the assets life vis--vis net income on the financial accounting books (that reflect straight-line depreciation for GAAP purposes) ....
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This note was uploaded on 03/06/2011 for the course ECON 435 taught by Professor Galven during the Spring '11 term at Ill. Chicago.

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