A deductible temporary difference produces a supported future tax deduction through recovery of an asset or settlement of a liability. It is measured as a future difference before applying the enacted rate. Gross deferred-tax recognition and later realization review remain separate steps.
Trace the future deduction
ASC 740-10-25-24 includes tax deductions deferred to future periods within the temporary-difference model. Identify the transaction that will cause the deduction and the period and character of that deduction.
Suppose a $60,000 warranty liability is recognized for book purposes and, under supplied tax facts, becomes deductible only when paid. Its tax basis is zero under those facts, and settlement creates a $60,000 future deduction. At a 21 percent enacted reversal rate, the gross deferred tax asset is $12,600. That amount is not cash and does not prove realization. Jurisdiction, expiration, expected settlement, evidence, and any recognition exception still need their own support.
Put the concept to work
Apply this concept
- Measure a supplied deductible temporary difference and distinguish gross deferred-tax recognition from the later realization assessment.
Learning resources
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