Ivey Publishing

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Ford Motor Company: Accounting for Deferred Taxes
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16 pages (7 pages of text)
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Case (Library)
Ford Motor Company is considering whether to reverse the valuation allowance it has recorded over its deferred tax assets. Due to substantial losses from 2006 to 2008, Ford has $10.3 billion of tax loss carryforwards in addition to other deferred tax assets; however, due to uncertainty, Ford has not recorded the value of those deferred tax assets on its balance sheet. To improve business conditions over 2009 and 2010, Ford must now decide whether it is “more likely than not” to realize the value of its deferred tax assets and reverse the $15.7 billion valuation allowance it has recorded. If the valuation allowance is reversed, Ford must also decide how to present the change in valuation in its financial statements.
Learning Objective:
The case focuses on the judgment required when evaluating the recoverability of deferred tax assets. Assessing whether the “more likely than not” criterion is achieved requires an assessment of future as well as past profitability. Further, the perceptions of users must be considered. This case is well suited to a graduate or undergraduate course in financial reporting. Ford will serve to help students understand the nature of deferred taxes and the impact of deferred taxes on income statements and balance sheets. Further, the decision of how to present a valuation allowance reversal allows students to consider presentation and disclosure issues associated with financial reporting.
United States, Large, 2011
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