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International Accounting
 

Valuation of deferred tax assets and deferred tax liabilities

Vol. 18, Iss. 11, MARCH 2015

Available online: 18 May 2015

Subject Heading: TRANSFORMATION OF NATIONAL REPORTING

JEL Classification: 

Pages: 43-54

Pokrovskaya N.V. Saint-Petersburg State University, St. Petersburg, Russian Federation
nvpokrovskaia@gmail.com

Antonets E.A. OOO Intellektual'nyi konsalting, St. Petersburg, Russian Federation
E.Antonets@avg.ru

Importance When the cost method is used to measure the business value, the appraiser considers financial statements and adjusts assets and liabilities in line with their market value. Deferred tax assets and liabilities, more often than not, are used at their carrying amount. It may distort the appraisal results.
     Objectives The article investigates the effect of deferred taxes under the Russian generally accepted accounting principles (GAAP) on the business value. The research covers such issues as deferred taxes in the entity's financial statements as an illustration of the effective tax policies; differences between the carrying amount and market value of deferred taxes; measurement of the market value of deferred tax assets and deferred tax liabilities.
     Methods
Using the methods of critical and comparative analysis, we show the main paradoxes of using the carrying amount of deferred tax assets and liabilities in business valuation through the cost method. To substantiate our proposals on measuring the market value of deferred tax assets and liabilities, we apply analytical methods for implementing the highest and best use concept (HBU).
     Results In business appraisal, items of deferred tax assets and deferred tax liabilities are revalued on the basis of different approaches. Deferred tax assets should be adjusted in line with the future income tax saving as assessed. The appraiser chooses to exclude deferred tax liabilities out of borrowings or remeasure them in line with the present value of the future increase in income tax after the appraiser analyzes the origination of respective liabilities and qualifies it as typical.
     Conclusions and Relevance When items of deferred tax assets and liabilities are remeasured assuming that income tax will be paid in the future in line with HBU concept, it will make business valuation even more accurate in accordance with expectations of its would-be acquirers.

Keywords: deferred tax assets, deferred tax liabilities, business valuation

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