[monicasanta]

Could someone please help with this?
I thought all deferred tax asset/liability should be non current. Why is the answer not 50,000?
When do we need to classify DTA or DTL by its related asset classification? I don’t think Becker talked about this in the material…

Thorn Co. applies Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. At the end of Year 1, the tax effects of temporary differences were as follows:
Deferred tax assets (liabilities) Related asset classification
Accelerated tax depreciation $ (75,000) Noncurrent asset
Additional costs in inventory for tax purposes 25,000 Current asset
Total $ (50,000)

A valuation allowance was not considered necessary. Thorn anticipates that $10,000 of the deferred tax liability will reverse in Year 2. In Thorn’s December 31, Year 1, balance sheet, what amount should Thorn report as noncurrent deferred tax liability under U.S. GAAP?
a. $65,000
b. $75,000
c. $40,000
d. $50,000
Explanation
Choice “b” is correct, $75,000 noncurrent deferred tax liability (based on classification of related asset as noncurrent).

Thank you!!!

[jeff]

All DTA/DTL are now non-current on the balance sheet.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[monicasanta]

@ Jeff

THanks Jeff! “Deferred asset and liabilities are classified based off their related asset/expense” -does that mean that this rule is not applicable any more?

[Anonymous]

Hi Monica!

FASB aligned DTA/DTO classification with IFRS (=all non-current) – here is the transition period:

When Will the Amendments Be Effective and What Are
the Transition Requirements?
For public business entities, the amendments in this Update are effective for
financial statements issued for annual periods beginning after December 15, 2016,
and interim periods within those annual periods.
For all other entities, the amendments in this Update are effective for financial
statements issued for annual periods beginning after December 15, 2017, and
interim periods within annual periods beginning after December 15, 2018.
Earlier application is permitted for all entities as of the beginning of an interim or
annual reporting period.

You may see further details in ASU2015-17.

Guys! Please remember this update on your FAR exam together with the dramatic changes on FIFO&average/NRV on inventories. Perhaps classification of bond issue cost can also be an issue.

KR,
Anton

[Author]

Replies