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1、iThe Research on Accounting for Income Tax of Mergers and AcquisitionsAbstractM(b) the carry forward of unused tax losses; and(c) the carry forward of unused tax credits. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. B
2、alance sheet liability method focuses on present and future. Under balance sheet liability method, the items of balance sheet are recognized directly while the items of income statement are recognized indirectly. Deferred tax assets and deferred tax liabilities on balance sheet date are calculated f
3、irst and then we calculate tax expenses. The formula is as follows: tax expense= current tax + (ending balance of deferred tax liabilities beginning balance of deferred tax liabilities) (ending balance of deferred tax assets- beginning balance of deferred tax liabilities).So the tax expense is the a
4、ggregate amount included in the determination of net profit or loss for the period in respect of current tax and deferred tax.2.2 The adoption of balance sheet liability method2.2.1 The strengths of balance sheet liability methodCompared to the income statement liability method, the balance sheet li
5、ability method better serves the needs of more relevant and reliable accounting information, which provides the following strengths:1. Improve the relevance of accounting informationAccording to the balance sheet liability method, the deductible temporary differences and the taxable temporary differ
6、ences would be recognized as deferred tax assets and deferred tax liabilities respectively. They are the essential items that comprise the balance sheet. Such accounting treatment can thoroughly reflect the inflow and outflow of cash in the future because of the temporary differences on the balance
7、sheet date. Therefore, the information user can better judge the financial position and predict the future cash flow.2. Provide more reliable and sufficient income tax accounting information5As mentioned above, the balance sheet liability method focuses on temporary differences, which includes all t
8、he timing differences and other temporary differences. Temporary differences arise in the following circumstances, which do not give rise to timing differences:(a) Subsidiaries, associates or joint ventures have not distributed their entire profits to the parent or investor(b) Assets are revalued an
9、d no equivalent adjustment is made for tax purposes; and(c) The cost of a business combination that is an acquisition is allocated to the identifiable assets and liabilities acquired, by reference to their fair values but no equivalent adjustment is made for tax purposes.Furthermore, there are some
10、temporary differences which are not timing differences, for example those temporary differences that arise when:(a) The non-monetary assets and liabilities of a foreign operation that is integral to the operations of the reporting entity are translated at historical exchange rates;(b) Non-monetary a
11、ssets and liabilities are restated under IAS 29, Financial Reporting in Hyperinflationary Economies; or(c) The carrying amount of an asset or liability on initial recognition differs from its initial tax base.Therefore, when we apply balance sheet liability method, we could acquire more sufficient a
12、nd complete information.3. Provide an easier and comprehensible way of accounting for income taxUnder income statement liability method, there is only one account which is “deferred income tax”. But under balance sheet liability method, we set two accounts based on the specific temporary differences
13、. They are “deferred tax assets” and “deferred tax liabilities”. Its more comprehensive for us to recognize and measure the deductible temporary differences and the taxable temporary differences by using two accounts.4. Achieve the targets of tax law and accounting in an better wayThe goal of the ta
14、x law is to assure the tax revenues while the aim of accounting is to 6provide relevant, reliable information to the users. Its true that the differences cant be avoided. Moreover, with the development of the economy, we can expect that there will be more temporary differences including timing diffe
15、rences and other temporary differences. However, using income statement liability method cant handle other temporary differences. The adoption of balance sheet liability method can solve all the differences between accounting profit and taxable profit.2.2.2 The application of balance sheet liability
16、 methodAccording to both “IAS 12 Income Taxes (revised 2000)” and “Accounting Standards for Enterprises No. 18 - Income Tax”, accounting for income tax should adopt the balance sheet liability method. Under balance sheet liability method, the key of accounting treatment is to determine the tax base of the assets and liabilities. The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an enterprise when it re
