Option 1c: Accrued Operating Tax without Valuation Allowance
Table 3: EP without Valuation Allowance
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Option 1c: Accrued Operating Tax without Valuation Allowance |
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The
corporate tax provision may also have been affected by a valuation
allowance. If a company has deferred tax assets, they may have decided
that some of those credits were unlikely to be realized. Management may
add-back valuation allowances to net assets and add back the change in
those allowances to income. This would eliminate the subjectivity
inherent in valuation allowances and the potential distrust that could
arise if changes in the allowance create large swings in EP. On the
other hand, there may be compelling reasons to allow for the likely
non-realization of tax assets. Eliminating impact of the valuation
allowance on EP may result in a sudden drop in EP when the tax asset
expires to catch up with "overstatement" of EP in the prior
years, as illustrated in the following table:
Table 3: EP without Valuation Allowance <.font>
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