# ASC 740-942: Income Taxes — Financial Services—Depository and Lending Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/740/942/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:20:14.035Z to 2026-09-10T01:20:33.865Z Record version: sha256:116cea659505e1d864dbb2b9a5cd2d4a6692213bdff375a564b6d60c84fed515 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-942: Income Taxes — Financial Services—Depository and Lending ### Machine-generated study aids ```json { "summary": "This subtopic applies Topic 740 to stock and mutual savings and loan associations and mutual savings banks, whose tax bad-debt reserve deductions differ from book bad-debt experience. Its core rule is an exception to comprehensive deferred tax recognition: no deferred tax liability is recognized for the tax bad-debt reserve that arose in tax years beginning before December 31, 1987 (the base-year amount), while a deferred tax liability must be recognized for reserve amounts in excess of the base year. Related valuation allowance, measurement, and disclosure requirements are specified.", "key_points": [ "A deferred tax liability is not recognized for bad debt reserves for tax purposes of U.S. savings and loan associations (and other qualified thrift lenders) arising in tax years beginning before December 31, 1987 (the base-year amount) unless it becomes apparent the temporary difference will reverse in the foreseeable future (740-942-25-1).", "If circumstances indicate the association is likely to pay income taxes currently or later because of known or expected reductions in the bad debt reserve, those taxes must be accrued as tax expense of the current period (740-942-25-1).", "A deferred tax liability must be recognized for bad debt reserves arising in tax years beginning after December 31, 1987, that is, amounts in excess of the base-year amount (740-942-25-2; 740-30-25-5; 740-942-35-2).", "The entity must assess the need for a valuation allowance on deferred tax assets related to the association's bad-debt reserve for financial reporting, and in doing so may not count future reversals of taxable differences for which no deferred tax liability was recognized under the 740-10-25-3 exceptions (740-942-25-3; 740-942-25-4).", "If no deferred tax liability is recognized for the base-year reserve, the association shall not anticipate future percentage-of-taxable-income bad-debt deductions in measuring deferred taxes on other temporary differences (740-942-35-1; 740-942-35-3).", "Where graduated tax rates are a factor, the percentage-of-taxable-income bad-debt deduction may result in a lower average graduated rate being applied in measuring deferred taxes if it pushes taxable income into a lower bracket (740-942-35-3).", "When the base-year exception is used, disclose the types of temporary differences and events that would make them taxable, the cumulative amount of each type, and the unrecognized deferred tax liability; the same disclosures apply to a parent consolidating or equity-method accounting for the association (740-942-50-1; 740-942-50-2)." ], "categories": [ "Income taxes", "Industry-specific", "Recognition", "Disclosure" ], "audience_level": "advanced", "student_note": "This is one of the few surviving exceptions to comprehensive deferred tax recognition under Topic 740, so exam questions often test the pre-1988 \"base-year\" cutoff. A common misunderstanding is assuming the entire tax bad-debt reserve is exempt — only the base-year amount is; post-1987 excess reserves require a deferred tax liability, and unrecognized differences cannot be used as a source of taxable income for valuation allowance purposes.", "related_topics": [ "740-10", "740-30", "942-10", "942-740", "740-20" ], "key_concepts": [ "base-year bad-debt reserve", "temporary difference", "deferred tax liability recognition exception", "valuation allowance", "percentage-of-taxable-income bad-debt deduction", "savings and loan association", "qualified thrift lender", "general reserves" ] } ``` Source downloaded (UTC): 2026-09-10T01:20:14.035Z to 2026-09-10T01:20:14.035Z Record version: sha256:eb2596f21c2ef705d72e9ed50d8773ae779616eb30c187eb682d7dc368a4f218 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-942-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/740/942/#00-status) SEC content: no ##### [740-942-00-1](https://asc.understandingaccounting.org/asc/740/942/#740-942-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:14.035Z to 2026-09-10T01:20:14.035Z Record version: sha256:73f82cab22038b7ea26c53ac8ffe724525235fcf526d4b91dcd79ffc0df04d20 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
942-740-15-2AmendedAccounting Standards Update No. 2018-0605/07/2018
942-740-25-1AmendedAccounting Standards Update No. 2015-0101/09/2015
942-740-45-1SupersededAccounting Standards Update No. 2018-0605/07/2018
Source downloaded (UTC): 2026-09-10T01:20:17.903Z to 2026-09-10T01:20:17.903Z Record version: sha256:6035b35c3d5019c4a4db7d754fa6b5196bd980601382150e6815514bf4d79334 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-942-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/740/942/#05-overview-and-background) SEC content: no ##### [740-942-05-1](https://asc.understandingaccounting.org/asc/740/942/#740-942-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:17.903Z to 2026-09-10T01:20:17.903Z Record version: sha256:9cc2f61f09fd2d7de7ce347ead89cdf9204cc33df90fdd1cecd2fa63dea8130d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides recognition, measurement, and disclosure guidance for deferred tax assets and liabilities of stock and mutual savings and loan associations and mutual savings banks. ##### [740-942-05-2](https://asc.understandingaccounting.org/asc/740/942/#740-942-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:17.903Z to 2026-09-10T01:20:17.903Z Record version: sha256:dd3d0d0a998bf5cd020646fa909d9e408810c5d607c19705543a8d96886954b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Regulatory authorities require both stock and mutual savings and loan associations to appropriate a portion of earnings to general reserves and to retain the reserves as a protection for depositors. The terms general reserves and reserve for bad debts are used in the context of the special meaning these terms have in regulatory pronouncements and in the U.S. Internal Revenue Code. Provisions of the U.S. Internal Revenue Code permit a savings and loan association to deduct an annual addition to a reserve for bad debts in determining taxable income, subject to certain limitations. This annual addition permitted by the Internal Revenue Code generally differs significantly from the bad debt experience upon which determination of pretax accounting income is based. Thus, taxable income and pretax accounting income of an association usually differ. ##### [740-942-05-3](https://asc.understandingaccounting.org/asc/740/942/#740-942-05-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:17.903Z to 2026-09-10T01:20:17.903Z Record version: sha256:f9e472e863d33a39ebcd75b80be8c3a0215c5d7428272ed99aad5c0adf79c34a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although a general reserve determined according to requirements of the regulatory authorities is not directly related to a reserve for bad debts computed according to provisions of the U.S. Internal Revenue Code, the purposes and restrictions of each reserve are similar. Amounts of bad debt deductions for income tax purposes are includable in taxable income of later years only if the bad debt reserves are used subsequently for purposes other than to absorb bad debt losses. Source downloaded (UTC): 2026-09-10T01:20:19.986Z to 2026-09-10T01:20:19.986Z Record version: sha256:54fff195cc1302bd2cbf842e608d8d61f02add7f6f524696bcaa78b3b1f03c69 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-942-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/740/942/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [740-942-15-1](https://asc.understandingaccounting.org/asc/740/942/#740-942-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:19.986Z to 2026-09-10T01:20:19.986Z Record version: sha256:f65053fecd73b3034af59240bd381d557bae23434661dee4d32bafccb8c6a6b5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 942-10-15, with specific entity exceptions noted below. #### Entities ##### [740-942-15-2](https://asc.understandingaccounting.org/asc/740/942/#740-942-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:19.986Z to 2026-09-10T01:20:19.986Z Record version: sha256:e02156a023c4e059c968d70604bc179a325c12091b198d181b7c90217f74f34c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic is applicable to stock and mutual savings and loan associations and mutual savings banks. Source downloaded (UTC): 2026-09-10T01:20:22.187Z to 2026-09-10T01:20:22.187Z Record version: sha256:47577254a7fcbcd5ee16d41ee5477f71e0d65c9278d00ab901baf53905acde4b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-942-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/740/942/#25-recognition) SEC content: no #### Deferred Tax Liability ##### [740-942-25-1](https://asc.understandingaccounting.org/asc/740/942/#740-942-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:22.187Z to 2026-09-10T01:20:22.187Z Record version: sha256:8e0180579ba4ab324361da661584feec87bf3f28f76ec2b0162a3c9e60e8d67e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As described in paragraph [740-10-25-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3), a deferred tax liability shall not be recognized for the following types of temporary differences unless it becomes apparent that those temporary differences will reverse in the foreseeable future: 1. a Bad debt reserves for tax purposes of U.S. savings and loan associations (and other qualified thrift lenders) that arose in tax years beginning before December 31, 1987 (that is, the base-year amount). However, if circumstances indicate that the association is likely to pay income taxes, either currently or in later years, because of known or expected reductions in the bad debt reserve, income taxes attributable to that reduction shall be accrued as tax expense of the current period. ##### [740-942-25-2](https://asc.understandingaccounting.org/asc/740/942/#740-942-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:22.187Z to 2026-09-10T01:20:22.187Z Record version: sha256:90f73d72a472cae5e7b8c09c764be09b63d5e82767054a0f50f2fe6fe9f7b0f5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-30-25-5](https://asc.understandingaccounting.org/asc/740/30/#740-30-25-5) requires that a deferred tax liability be recognized for the following types of taxable temporary differences: 1. a Bad debt reserves for tax purposes of U.S. savings and loan associations (and other qualified thrift lenders) that arise in tax years beginning after December 31, 1987 (that is, amounts in excess of the base-year amount). #### Deferred Tax Asset ##### [740-942-25-3](https://asc.understandingaccounting.org/asc/740/942/#740-942-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:22.187Z to 2026-09-10T01:20:22.187Z Record version: sha256:e2294f758d2b0ad7503dfe4bcd4acc0b3af99d6e16ff9d8883eef2a39447f08a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The entity shall assess the need for a valuation allowance for deferred tax assets related to a savings and loan association's bad-debt reserve for financial reporting. ##### [740-942-25-4](https://asc.understandingaccounting.org/asc/740/942/#740-942-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:22.187Z to 2026-09-10T01:20:22.187Z Record version: sha256:bbda5217e9349130e32921c62616ae613b5957cf373e7028c32fa35adb303a79 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-30-18](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-18) identifies four sources of taxable income to be considered in determining the need for and amount of a valuation allowance for those and other deferred tax assets. One source is future reversals of temporary differences. Future reversals of taxable differences for which a deferred tax liability has not been recognized based on the exceptions cited in paragraph [740-10-25-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3), however, shall not be considered. Another source is future taxable income exclusive of reversing temporary differences and carryforwards. Source downloaded (UTC): 2026-09-10T01:20:25.338Z to 2026-09-10T01:20:25.338Z Record version: sha256:7a602f3ba89d59fafd6e8aa4f408ecd09ed8793047182d8173e009667bb24de7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-942-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/740/942/#35-subsequent-measurement) SEC content: no #### Deferred Tax Assets and Liabilities ##### [740-942-35-1](https://asc.understandingaccounting.org/asc/740/942/#740-942-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:25.338Z to 2026-09-10T01:20:25.338Z Record version: sha256:045132d0b0fbeddc24cde76a5b1f84fd1a8fa5e16962202d1d6c5929e017d143 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:25.338Z to 2026-09-10T01:20:25.338Z Record version: sha256:617c5f8f5505904f5366d4672799cc1ac8b3d549460ea939e350fec629d58bfa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:25.338Z to 2026-09-10T01:20:25.338Z Record version: sha256:8fb2cd4450aa4702fb84cc152d869afa583ec7c115b63ab07817ef8269b0d294 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. Source downloaded (UTC): 2026-09-10T01:20:28.011Z to 2026-09-10T01:20:28.011Z Record version: sha256:761a49e152a45b6f9076e3f15d57d5b12c2b73b113588e3b9dc25b63ac82d537 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-942-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/740/942/#45-other-presentation-matters) SEC content: no ##### [740-942-45-1](https://asc.understandingaccounting.org/asc/740/942/#740-942-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:28.011Z to 2026-09-10T01:20:28.011Z Record version: sha256:cd1f7eaccf88a1c829e924d3685675857f5f0c7e28082f5ef0ca85c182dac85f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-06](https://asc.understandingaccounting.org/updates/asu-2018-06/). Source downloaded (UTC): 2026-09-10T01:20:31.179Z to 2026-09-10T01:20:31.179Z Record version: sha256:4dfbf02b767ab93f73a74b8516572dcf845a28f06617e2e785d12845836d34a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-942-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/740/942/#50-disclosure) SEC content: no #### Deferred Tax Liability ##### [740-942-50-1](https://asc.understandingaccounting.org/asc/740/942/#740-942-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:31.179Z to 2026-09-10T01:20:31.179Z Record version: sha256:ff047cfb8b8399a81394be52fa5a60f4cc917a2842d0f2c019a8b9acfd32dfdb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following information shall be disclosed whenever a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes related to a savings and loan association's bad-debt reserve for financial reporting: 1. a A description of the types of temporary differences for which a deferred tax liability has not been recognized and the types of events that would cause those temporary differences to become taxable 2. b The cumulative amount of each type of temporary difference 3. c The amount of the deferred tax liability for temporary differences (that is, the bad-debt reserve for tax purposes of a U.S. savings and loan association or other qualified thrift lender) that is not recognized in accordance with the provisions of paragraphs [740-10-25-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3), [740-30-25-5](https://asc.understandingaccounting.org/asc/740/30/#740-30-25-5), [740-30-25-18](https://asc.understandingaccounting.org/asc/740/30/#740-30-25-18), and [942-740-25-1 through 25-3](https://asc.understandingaccounting.org/asc/740/942/#740-942-25-1) . ##### [740-942-50-2](https://asc.understandingaccounting.org/asc/740/942/#740-942-50-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:20:31.179Z to 2026-09-10T01:20:31.179Z Record version: sha256:33da953563f5fd2ed908ad44919900b80fff6f2b3d1a37c9b91875c7843b0c4d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The disclosure requirements set forth in the preceding paragraph also apply to a parent entity of a savings and loan association accounting for that investment either through consolidation or by the equity method.