SFAS No 109 takes a decidedly different approach to the treatment of operating loss carryforwards.Under APB Opinion No.11,the presumption was that operating losses would not be realizable.As a result,the entity experiencing the loss would not provide for the effects of carryforwards in its financial statements until the benefits were in fact later realized for tax purposes.SFAS No.96 was even more stringent in its approach in that net deferred tax debits were prohibited to the extent they exceeded amounts which would be recoverable through operating loss carrybacks as of the date of the balance sheet.SFAS No.109 treats net operating loss carryforwards in the same manner as the tax effects of other deductible temporary differences and allow both to be recognized as deferred tax assets.The approach of SFAS No.109 has been criticized by some,however.
Required:
Identify what you perceive to be the weaknesses in the approach promulgated by SFAS No.109.

Question

Quizplus · Accepted Answer

The Answer of SFAS No 109 takes a decidedly different approach to the treatment of operating loss carryforwards.Under APB Opinion No.11,the presumption was that operating losses would not be realizable.As a result,the entity experiencing the loss would not provide for the effects of carryforwards in its financial statements until the benefits were in fact later realized for tax purposes.SFAS No.96 was even more stringent in its approach in that net deferred tax debits were prohibited to the extent they exceeded amounts which would be recoverable through operating loss carrybacks as of the date of the balance sheet.SFAS No.109 treats net operating loss carryforwards in the same manner as the tax effects of other deductible temporary differences and allow both to be recognized as deferred tax assets.The approach of SFAS No.109 has been criticized by some,however.
Required:
Identify what you perceive to be the weaknesses in the approach promulgated by SFAS No.109.

SFAS No 109 Takes a Decidedly Different Approach to the Treatment