What are the arguments for discounting deferred tax liabilities?
What will be an ideal response?
ANSWER:
Long-term liabilities, such as bonds payable and non-cancellable leases, as well as non-interest-bearing notes receivable are carried at their present values. Consistency would appear to dictate that tax liabilities under either the comprehensive or partial approaches should be discounted.
Tax liabilities under both the comprehensive and partial approaches are really interest-free loans. However, the opportunity cost doctrine from economics has been advocated as a justification for discounting by the implicit interest rate; if the funds were not received from the government in the form of lower income taxes, borrowing from another source would have been necessary. The interest rate on the funds from the next best source would be their opportunity cost.
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