Which of the following factors will NOT impact the classification of deferred tax liabilities? A) Growth of the firm. B) Changes in firm operations. C) Present value of the future payments. D) Changes in tax laws Answer is C… But as far i can recall, only PV of tax liabilities should be treated as liability and rest as equity… Pls help…
GAAP = Classification A good analyst will treat part as equity, but per US GAAP this does not impact the classification.
then how does Growth impact classification… Even if the firm is expected to grow, firm will recognize increased liability… it wont be treated as equity… May be i am not able to understand the question correctly…
A growing firm is expected to have capital investments, which in turn would increase deferred liabilities (because of the temporary difference in depreciation methods, between the straight line (usually) depreciation method used on the income statement, versus the accelerated method (double declining, some of years digits) on the tax reporting). The present value of future payments has nothing to do with deferred liabilities - even if not current, taxes are considered current liabilities.