In short
Deferred tax assets and liabilities are measured using the tax rates enacted in law that are expected to apply when the temporary differences reverse. Expected future rate changes that aren't yet law are ignored.
Key takeaways
- The effect of a change in tax law is recognized in income from continuing operations in the period the law is enacted (signed).
- If different rates apply in different years, the rate for each year of reversal is used.
- The adjustment is made even if the related item was originally recorded in other comprehensive income.
Where it's tested
FAR: Income Taxes (Deferred Tax Accounting) — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Pretax book income is $800,000, including $50,000 of tax-exempt municipal bond interest. Tax depreciation exceeded book depreciation by $100,000. The tax rate is 21%. What is total income tax expense?