Deferred Tax Models
Potential models to deal with deferred taxes that were considered were:
- (1) Elimination of interperiod tax allocation. (No deferred taxes!)
- (2) Use of “net of tax method”-reduction in value of asset/liability for their anticipated tax effect.
- (3) “Liability Method” The emphasis is on determining the balance in the deferred tax asset/liability account; tax expense becomes the “plug” figure.
FASB #96 was drawn up to address these problems. FASB #96 was very complex. #96 was superseded by FASB #109 to simplify things somewhat. The liability method was adopted (balance sheet approach). SFAC were more closely adhered to.