Long-Term Financial Liabilities
Typical long-term financial liabilities include loans (i.e., borrowings from banks) and notes or bonds payable (i.e., fixed-income securities issued to investors). Liabilities such as loans payable and bonds payable are usually reported at amortised cost on the balance sheet. At maturity, the amortised cost of the bond (carrying amount) will be equal to the face value of the bond.
In certain cases, liabilities such as bonds issued by a company are reported at fair value. Those cases include financial liabilities held for trading, derivatives that are a liability to the company, and some non-derivative instruments, such as those which are hedged by derivatives.
Deferred Tax Liabilities
Deferred tax liabilities result from temporary timing differences between a company’s income as reported for tax purposes (taxable income) and income as reported for financial statement purposes (reported income). Deferred tax liabilities result when taxable income, and the actual income tax payable in a period based on it, is less than the reported financial statement income before taxes and the income tax expense based on it. Deferred tax liabilities are defined as the amounts of income taxes payable in future periods in respect of taxable temporary differences.
Deferred tax liabilities typically arise when some expenses are included in taxable income in earlier periods than for financial statement net income. This results in taxable income being less than income before taxes in the earlier periods. As a result, taxes payable based on taxable income are less than income tax expense based on accounting income before taxes. The difference between taxes payable and income tax expense results in a deferred tax liability—for example, when companies use accelerated depreciation methods for tax purposes and straight-line depreciation methods for financial statement purposes. Deferred tax liabilities also arise when some income is included in taxable income in later periods—for example, when a company’s subsidiary has profits that have not yet been distributed and thus have not yet been taxed.
