FASB #96
Under FASB #96: Example of the calculation of a deferred tax liability for Company “A”. One temporary difference only.
- Scheduling to calculate the deferred tax liability and how it arises was required. This requirement proved rather onerous as most situations were not that complex.
- Depreciation taken on tax return year 2 in excess of book depreciation = $10,000. This is expected to reverse (i.e., book depreciation > tax depreciation) in years 3 ($6,000) and 4 ($4,000)
- Tax rate remains the same at 30% per year. Taxable income year 2 was $14,000.
- Beginning balance in deferred tax account was zero.