Schweser Vol 2 page 336, question 19: A firm has a large deferred tax asset not able to realize, how to adjust the financial statement to account for this? Answer: recognize a valuation allowance to reflect the fact that the deferred tax asset is unlikely to be realized. My question is that how does it appear in the Balance sheet and income statement? On the Asset side: do we increase the Valuation allowance account and decrease the deferred tax asset by same amount? Also no impact on liability and equity? In this case there’s no impact on the income statement. Any one can help clarify on the impact on Balance sheet and income statement?? Thanks very much!
valuation allowance is a contra-asset account on the BS and as such you can decrease it along with DTA with no impact on liabilities and equity.
lola Wrote: ------------------------------------------------------- > valuation allowance is a contra-asset account on > the BS and as such you can decrease it along with > DTA with no impact on liabilities and equity. Hi, lola, does it mean there’s no impact on income statement?
any body can advise?