Deferred Tax Assets Under FASB Statement No. 96

In December 1987, the FASB issued Statement No. 96 (SFAS-96), which prescribes a new method of interperiod income tax allocation. This paper is an elaboration of SFAS-96. It examines the basic theory underlying the asset/liability approach, and indicates where the theory is or is not straightforward in its application. According to SFAS-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.