Access the financial statements and related disclosure notes of Google Inc. from
ID: 2419893 • Letter: A
Question
Access the financial statements and related disclosure notes of Google Inc. from its website at investor.google.com. In Google's balance sheet, deferred income taxes in 2010 are reported as both a current asset ($259 million) and a noncurrent asset ($265 million) but none among liabilities.
Required:
Explain why deferred income taxes can be reported as both an asset and a liability. Is that the case for Google in 2010?
Note 15 in the disclosure notes indicates that deferred tax assets are $1,221 million in 2010 and deferred tax liabilities are $405 million. How can that be explained in light of the two amounts reported in the balance sheet?
Does Google feel the need to record a valuation allowance for its deferred tax assets?
Explanation / Answer
1.An asset that may be used to reduce any subsequent period's income tax expense. Deferred tax assets can arise due to net loss carry-overs, which are only recorded as asset if it is deemed more likely than not that the asset will be used in future fiscal periods.
Temporary difference are differences between the carrying amount of an asset or liability recognized in the statements of financial position and the amount attributed to that asset or liability for tax.
Deferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense/unpaid liabilities, or income is accrued but not taxed until received.
Deferred tax assets generally arise where tax relief is provided after an expense is deducted for accounting purposes.Examples of such situations include:
An asset on a company's balance sheet that may be used to reduce any subsequent period's income tax expense. Deferred tax assets can arise due to net loss carryovers, which are only recorded as assets if it is deemed more likely than not that the asset will it's difference company tax and income tax also. and it will come by using the company company assets.
The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated (ASC 740-10).
2.The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized (ASC 740-10).
3.Yes the Google also feels the need for valuation allowance for its deferred tax assets because,
Sometimes, a company expects it will not be able to realize the benefits of its deferred tax assets. For example, If a company loses $10 million, it would record a deferred tax asset representing the decrease in taxes on its next $10 million in earnings. However, if the company doesn't expect profits for the next several years, and doesn't expect to earn $10 million in the seven-year time horizon before these deferred tax assets expire, it can't record them at full value - because the company won't be able to take advantage of this tax benefit.
If a company expects there is more than 50% chance it will not be able to realize some of its deferred tax assets (because its future income won't be large enough to take full advantage of these tax breaks), it must report a valuation allowance to account for this.