Final answer:
The total Valuation Allowance for deferred tax assets is an accounting figure that reduces the reported amount of deferred tax assets based on the likelihood they will be realized. Companies assess a variety of factors, including future taxable income and tax planning strategies. This figure is subject to regular review and may be adjusted as future conditions change.
Step-by-step explanation:
The total Valuation Allowance for deferred tax assets is an accounting adjustment that companies use to recognize the likelihood that some portion of their deferred tax assets will not be realized. This allowance essentially reduces the reported amount of deferred tax assets to the amount that is more likely than not to be realized. The total valuation allowance will therefore depend on the company's assessment of its future profitability and other factors that affect the likelihood of realizing the tax benefits of its deferred tax assets.
To determine the total valuation allowance, companies will perform a detailed analysis considering future taxable income, feasible tax planning strategies, and the expiration of tax loss carryforwards, among other considerations. If it is determined that it is more likely than not that some portion of the deferred tax assets will not be used, a valuation allowance is recorded to offset those specific assets. This is typically presented in a company's financial statements and notes to the financial statements, and can have a significant impact on reported earnings.
The actual calculation involves estimating the amount of deferred tax assets that will not be realized and then debiting the valuation allowance and crediting the deferred tax asset account within the balance sheet. The process requires significant judgment and adherence to accounting principles, and the final value is subject to regular review and adjustment as conditions change.