Deferred Tax Asset/Liability Calculation

Definition: The Deferred Tax Asset or Liability is calculated as: Temporary Difference × Enacted Tax Rate. Deductible temporary differences (e.g., warranty acc…

The Deferred Tax Asset or Liability is calculated as: Temporary Difference × Enacted Tax Rate. Deductible temporary differences (e.g., warranty accrual, allowance for doubtful accounts, net operating loss carryforwards) create Deferred Tax Assets. Taxable temporary differences (e.g., accelerated tax depreciation, installment sales, prepaid income) create Deferred Tax Liabilities. Under ASC 740, the enacted rate expected to apply when the difference reverses is used, and a Valuation Allowance reduces DTAs when it is more likely than not that some portion will not be realized.