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CHAPTER 11: INCOME TAXES > DEFERRED TAX ASSET COMPUTATION

DEFERRED TAX ASSET COMPUTATION

The same mechanics apply to cases in which taxable income is higher in the current period, which produces a deferred tax asset. If an entity must include a deposit received from a customer (unearned income) in year one, but will recognize the revenue in year two, the deferred tax asset will equal the balance in unearned income multiplied by next year’s tax rate. If the deposit is $200 USD, and the tax rate for the following year is expected to be 40%, the deferred tax asset will be $80 USD. If in year two the revenue is still not completely earned (for instance if the deposit relates to a multiple deliverable arrangement), the deferred tax asset will be the remaining balance multiplied by the tax rate for year three. If the unearned income....


  

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