The following disclosure notes have been taken from the consolidated annual report of a Canadian public company that complies with IFRS standards. Assume that the effective tax rate is 35% for this company.
Note 17 Income tax
Deferred tax liabilities
Deferred tax liabilities reported on the statement of financial position arise as follows:
($ thousands)
|
Source of temporary difference
|
Amount
|
|
Current asset
|
$ (345)
|
|
Non-current asset
|
(6,320)
|
|
Current liability
|
110
|
|
|
|
|
Total deferred tax liabilities at December 31, 2012
|
$(6,555)
|
Loss carryforwards
The gross value of unused tax loss carryforwards which have, or have not, been recognized as tax assets, along with their expiry dates, are as follows:
($ thousands)
|
Expiry date
|
Recognized
|
Not recognized
|
|
One year
|
|
$ 1,300
|
|
Two years
|
|
3,200
|
|
Three years
|
|
400
|
|
Four years
|
|
3,900
|
|
Five years
|
$ 2,800
|
|
|
More than five years
|
5,600
|
|
|
|
|
|
|
Total at December 31, 2012
|
$8,400
|
$8,800
|
Required
1. In general, what is the meaning of a deferred tax liability? That is, why is it a liability?
2. The disclosure note above refers to the SFP accounts that cause deferred taxes for this company. From the course material, suggest one current asset, one non-current asset, and one current liability that might cause deferred taxes, and explain for each one why the tax basis and accounting basis are different.
3. In general, explain two situations that would cause a deferred tax liability caused by a temporary difference to decrease in a future year.
4. For tax loss carryforwards in the note disclosure above, why are some amounts recognized and some not recognized?
5. How much would assets and earnings change if tax loss carryforwards were de-recognized (written off)?