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GM Loses $39 B

GM announced it took a $39 B loss reserve.   But cash was not affected nor the ability to take the tax credits in the future. It seems the FASB in their wisdom came up with this sort of impairment charge. If you lose money for the same three consecutive quarters you have to write down the value of the tax credits you have. A tax credit is only valuable tothe extent of earnings.  And with no earnings, GM posted a whopping $39 B paper loss. 

This is another reason why we study accounting, to understand such requirements and how they can affect earnings or non operating earnings in this case.

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3 responses to “GM Loses $39 B”

  1. jerry Avatar
    jerry

    Posted to the wrong article! See next article.
    Dr. Elam,
    I found this blog below that explains exactly what a deferred tax credit is and how its accounted for. Im not a link web master so I just copied the address here and thought anyone could paste it to their browser.
    There are several links within the article help better explain what all this means.
    Jerry
    http://www.portfolio.com/views/blogs/market-movers/2007/11/07/what-is-a-deferred-tax-credit-noncash-charge-anyway

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  2. jerry Avatar
    jerry

    actually there is a link titled explain what is going on. at the bottom of that article there is an explanation detail that explains the ($3.5B) loss in equity at GM and better yet delves into how credits are supposed to be used should a company prove profitable. It also explains that a company cannot continue carrying forward tax credits if it was not expected to pay taxes in a loss year. Its all very interesting.
    So is a loss really a loss?

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  3. jerry Avatar
    jerry

    For some reason I cant post to this article. see the next post.
    Jerry

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