After Ford Motor Co. earned $9.3 billion in the last two years, it’s likely to make an accounting change this year to reflect confidence in its recovery. A tax expert said that this move could add up to $13 billion to net income.
In the second half, Ford may eliminate from its balance sheet an allowance held against its deferred tax assets, according to its federal filing this week. It was in 2006 that this reserve was created as Ford started posting four years of operating losses.
Robert Willens, president of Robert Willens LLC of New York, a corporate tax specialist, said that eliminating the allowance may add $10 billion to $13 billion to Ford’s net income this year. Willens considers this as a “very positive statement from Ford."
He added that if a carmaker takes the “radical step” of removing the valuation allowance, then it means that it has a high degree of confidence in its future profit-making ability.
Willens pointed out that in Ford’s Feb. 28 10-K filing, it revealed that its valuation allowance at the end of 2010 was $15.7 billion, which makes it one of the five largest among U.S. public companies. He said that as soon as the company has entered a sustained period of profitability, it must remove the item from its books. [via autonews - sub. required]