Deferred Tax Assets Under FASB Statement No. 96.

Abstract This article elaborates the guidelines provided in the FASB Statement No. 96 for deferred tax assets accounting. Issued in December 1987, the FASB 96 prescribed a new method of inter-period income tax allocation. This method is referred as the asset/liability approach, presumably because its application involves recognizing deferred tax assets as well as deferred tax liabilities. The author examines the basic theory underlying the asset/liability approach, and indicates where the theory is or is not straightforward in its application. According to FASB 96, the basic objective of accounting for income taxes is to recognize the amount of current and deferred income taxes payable or refundable at the date of the financial statements that result from transactions and events already recognized in the financial statements. According to SFAS 96, recognizing deferred tax liabilities for trade receivable temporary differences is implicit in recognizing trade receivables with book bases in excess of tax bases. The recognition of deferred tax assets for the future tax benefits of unearned revenue liability temporary differences is implicit in the assumptions inherent in the preparation of financial statements in accordance with generally accepted accounting principles.