The Benetton Group Annual Report 1996

(f) Accounting for Deferred Income Taxes
The Group provides for deferred income taxes on timing differences between book and taxable
income which are expected to become payable or recoverable in the foreseeable future using the
liability method.
The accompanying reconciliation reflects the tax effects related to reconciling adjustments.
In 1992, Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" was issued
in the US and was adopted by the Group in the year 1993.
The deferred tax methodology required under US GAAP differs in certain circumstances from the
deferred income tax methodology under Italian GAAP due to different treatment of tax assets mainly
deriving from tax loss carry-forward.
Under the terms of a law approved in December 1996, the Italian government is obliged to issue by
November 1997 one or more legislative decrees introducing a new Regional Tax on Businesses and
Professional Activities. Although all the rules applicable to this new tax are not set out in the above Law,
it does contain certain guidelines to which the government is obliged to adhere. The new tax will
substitute several existing taxes, including ILOR (locale income tax). It is expected to become effective
from the 1998 tax period. The Company has adjusted deferred tax assets in its Italian financial
statements for this anticipated change. Under US GAAP the measurement of current and deffered tax
liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not anticipated. The following tables include a reconciling item of approximately Lire
19 billion related to this anticipated change.
(g) Net Income per Share
Under Italian accounting principles, earnings per share are not required to be disclosed. The
approximate net income per share amounts, based on income determined in accordance with
accounting principles generally accepted in the US as shown in the accompanying reconciliation,
have been calculated based on the average number of shares outstanding.
(h) Marketable securities
Under Italian GAAP, marketable securities are carried at the lower of cost or market value. Under US
GAAP, effective with fiscal years beginning after December 15, 1993, companies are required to adopt
Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investment in Debt and
Equity Securities (SFAS 115)”, which changes the accounting for investments in marketable securities
from a lower of cost or market methodology to a fair market value methodology. Under this
methodology, the Company would classify its marketable securities as available for sale; however, the
effect of SFAS 115 on net income and shareholder’s equity is not significant.
(i) Treasury shares
Under Italian GAAP, the purchase by a Company of its own stock is accounted for as an investment
and the establishment of a separate reserve within stockholders’ equity. Since the Company’s intent
with respect to this stock is short term, they have been classified as marketable securities in the Italian
balance sheet. Under US GAAP this purchase is accounted for as treasury stock and presented as a
reduction of stockholders’ equity in the balance sheet.
Differences which have an effect on the format of the financial statements
The Group’s balance sheet and income statement format is in accordance with Italian reporting
requirements and differs from the financial statement format typically followed under the requirements
of US GAAP. The Group has included in appendix 2 and 3 financial statements prepared in accordance
with Italian GAAP but reclassified to follow an international financial statement presentation format.