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Computation of Deferred Tax Liability -- An Example

Summary

Deferred taxes reconcile the tax basis of a balance sheet with the basis currently being used for valuing assets and recording liabilities. That is, if all assets could be liquidated for exatly the amount shown on the balance sheet and if all liabilities could be satisfied by payment of exactly the amount shown, then what taxable income would result and what would be the tax liabilitity.