Companiesquite often create a deferred tax account in which tax funds arecredited to be paid in future when the time is due. An evaluationallowance for the company is also set aside to cushion taxobligations of the company.Steel Corporation has overtime created a valuation allowance to reduce its deferred taxes afterprojecting that it will not be able to use the deferred taxes tooffset future tax obligations. This was increased to a level wherethe deferred tax value was brought to zero so that the allowanceswould be able to meet the tax obligations of the company in future. Such a move is justified because in the event that profits are notforthcoming in the undertakings of the company then the valuationsallowances should be in place to pay off such future taxes of thecompany.Steel Corporation dwindled in profitability andit is expected that it would not grow in the near future to meet theexpectations of the shareholders.

Thetemporary differences identified in the tax footnote are explained tohave resulted from cumulative or future deductible amounts recordedin the financial statement in different years than recognized in thetax returns from the government.Differences in employee benefitsinclude amounts that were already expended but deductible in the taxreturns upon payments. Differences in depreciable assets representedprincipally cumulative tax depreciation in excess of what was in thefinancial statement. Differences in tax losses carried forward wererealized due to different expiration dates for the deferred taxes inthe company.

Fromthe tax footnote, a user of the financial statement can gleanscattered facts about the company and the need to make investmentsfrom the benefits that accrue from a standardized tax system anddeferred taxes of the company.