An enacted rate change remeasures existing deferred tax balances in the enactment period. Separate the effect of the new rate from changes in the underlying temporary difference and from changes in the valuation allowance. Do not revise the original transaction as if the new law had always applied.
Isolate the remeasurement
ASC 740-10-35-4 requires deferred tax assets and liabilities to reflect changes in tax laws or rates and may require a new allowance review. ASC 740-10-45-15 addresses presentation of the remeasurement effect.
A $300,000 taxable difference measured first at 25 percent creates a $75,000 liability. If a 21 percent rate is enacted before reversal, remeasurement produces $63,000 and a $12,000 benefit. Keep that $12,000 apart from originations and reversals. The enactment date, affected jurisdiction, reversal period, and allocation conclusion must be supported outside the arithmetic.
Use a three-column bridge for old-rate amount, new-rate amount, and difference so the remeasurement cannot disappear inside total deferred expense.
Put the concept to work
Analyze this concept
- Remeasure each supplied temporary difference at its new enacted reversal-period rate and isolate the resulting effect from basis and allowance changes.
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