# ASC 740-942-35: Income Taxes — Financial Services—Depository and Lending — 35 Subsequent Measurement

Source: FASB Accounting Standards Codification, Basic View

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## ASC 740-942-35: 35 Subsequent Measurement

[Read section](https://asc.understandingaccounting.org/asc/740/942/#35-subsequent-measurement)

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#### Deferred Tax Assets and Liabilities

##### [740-942-35-1](https://asc.understandingaccounting.org/asc/740/942/#740-942-35-1)

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The temporary difference under current U.S. federal tax law for the base-year tax reserve of a savings and loan association is one of the exceptions to comprehensive recognition of deferred taxes under Topic 740. If a deferred tax liability is not recognized for that temporary difference, a savings and loan association shall not anticipate future percentage-of-taxable-income bad-debt deductions in determining the deferred tax liability for other types of temporary differences. See paragraphs [740-10-25-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3), [740-10-25-37](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-37), [740-10-30-5](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-5), and [740-10-30-9](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-9).

##### [740-942-35-2](https://asc.understandingaccounting.org/asc/740/942/#740-942-35-2)

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The base-year tax reserve is the income tax bad-debt reserve that arose in tax years beginning before December 31, 1987 as provided by the income tax law changes enacted in 1986. The excess of a tax bad-debt reserve over the base-year reserve is a temporary difference for which deferred taxes must be provided.

##### [740-942-35-3](https://asc.understandingaccounting.org/asc/740/942/#740-942-35-3)

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Under Topic 740, deferred tax assets and liabilities for temporary differences shall be measured by applying the enacted tax rate expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. It is not permissible to reduce a deferred tax liability so determined by anticipated future percentage-of-taxable-income bad-debt deductions for the same reasons that other special deductions may not be anticipated as set forth in paragraphs [740-10-25-37](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-37) and [740-10-30-13](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-13). However, for associations for which graduated tax rates are a factor, the existence of the percentage-of-taxable-income bad-debt deduction may result in a lower average graduated tax rate being applied in measuring deferred taxes if it results in taxable income falling into a lower tax rate bracket.