Measuring the Amount of Deferred Taxes
The key to calculating the tax provision for financial statements is found in the measuring process. Under the liability method, the goal is to measure deferred taxes by using the enacted tax rate expected to apply to taxable income in periods the deferred tax asset or liability is expected to reverse.
Once deferred tax assets and liabilities for the future tax consequences of temporary differences and carryforwards have been measured, the deferred tax provision or benefit is based on the net change in a deferred tax balance during the year.
The formula illustrating this would be:
To further illustrate this process, consider the examples detailed on the following pages.
