Implications of the issuance of Statement of Financial Accounting Standards No. 121The Statement of Financial Accounting Standards No. 121 (SFAS 121) provides a long-awaited standard in accounting for declines in the values of fixed assets. Some companies often have a different book value of fixed assets for accounting purposes and another one for tax purposes. Accounting for the difference between the book values result in high deferred income tax liabilities. SFAS No. 121 does not apply to financial instruments or to mortgage and other servicing rights.
Finally a reduction in deferred income taxes?
The issuance of Statement of Financial Accounting Standards No. 121 (SFAS No. 121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in March, 1995 by the Financial Accounting Standards Board, provides standardization in the methods used to account for declines in the values of fixed assets. Prior to this pronouncement, there was a great deal of diversity in the way changes in the value of fixed assets were reported. Some firms did not record declines in the values of fixed assets at all, as they contended the cost of these assets would eventually be charged to expense as depreciation or depletion. Other firms recorded the decline in value by a charge to expense in the period in which it occurred.While the standardization of recording of the impairment in value of fixed assets should increase the comparability of financial reporting, it may also bring about a significant, decrease in the amount ...