There are two major methods
of presenting the tax effect of timing differences in the financial statements:
of presenting the tax effect of timing differences in the financial statements:
(a) Net – of – tax method, and
(b) Separate line item method
Net-of-Tax method: Under
this method, the effects of timing differences (determined by either the deferral
or liability method) are not reported separately. Instead, they are reported as
adjustments to the carrying amounts of specific assets or liabilities and the
related revenues or express whilst the net – of – tax method rightly recognizes
that the value of assets and liabilities is affected by tax consideration, it
fails to distinguish between a transaction and its tax effects. This method is
generally discourage.
this method, the effects of timing differences (determined by either the deferral
or liability method) are not reported separately. Instead, they are reported as
adjustments to the carrying amounts of specific assets or liabilities and the
related revenues or express whilst the net – of – tax method rightly recognizes
that the value of assets and liabilities is affected by tax consideration, it
fails to distinguish between a transaction and its tax effects. This method is
generally discourage.
Separate Line Item Method.
Under this method, the tax
effects in the financial statements are shown separately from the items or
transactions to which they relate. The main advantage of this method is that it
distinguishes between an item and its tax consequences.
effects in the financial statements are shown separately from the items or
transactions to which they relate. The main advantage of this method is that it
distinguishes between an item and its tax consequences.
