Writing Assignment (Crystallisation)
As discussed in the chapter, deferred taxes in the United Kingdom have historically been computed in a slightly different manner than in the United States. The concept underlying this “crystallisation” approach is that if a liability is deferred indefinitely, then the present value of that liability is zero. No deferred tax liability is recognized if the accumulated deferred tax amount is expected to increase each year, thus delaying indefinitely the ultimate liquidation of this obligation.
In one page or less,address the following questions regarding how crystallisation relates to accounts payable.
1. How might this same concept be applied to the recognition of a liability for accounts payable? That is, if accounts payable are expected to increase each year, should the crystallization concept apply to this liability?
2. How reasonable does this approach seem?