SFAS No109 Rejected the Approach of Its Predecessor SFAS No

question 8

Essay

SFAS No.109 rejected the approach of its predecessor SFAS No.96 regarding the classification of deferred tax assets and liabilities on the balance sheet.SFAS No.96 required that the deferred tax consequences of temporary differences that will result in taxable or deductible amounts during the following year or operating cycle (if longer than one year)be classified as current.SFAS No.109 requires that deferred tax assets and liabilities be classified based on the asset or liability to which the temporary difference relates or,if no clear relationship between the temporary difference and an asset or liability can be established,based on the date on which the deferred tax item will be realized or settled.
Required:
Explain why the FASB rejected the approach in SFAS No.96 and the basis for the method required in SFAS No.109.

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Definitions:

Mental Age

A measure of intelligence test performance devised by Binet; the level of performance typically associated with children of a certain chronological age. Thus, a child who does as well as an average 8-year-old is said to have a mental age of 8.

Binet and Simon

Alfred Binet and Theodore Simon, psychologists who developed the first practical intelligence test, the Binet-Simon scale, to assess cognitive abilities in children.

Aptitude Test

A test designed to predict a person’s future performance; aptitude is the capacity to learn.

Automobile Mechanic

A professional who specializes in repairing, maintaining, and sometimes modifying vehicles.