Deferred liabilities are the taxes and other expenses to be paid when assets are sold. Deferred taxes are the difference between the balance sheet value of an asset and its tax basis. In other words, if the business is liquidated, what taxes would be due on current inventories and capital assets?
Deferred liabilities can be estimated on a market value Detailed Balance Sheet in FINPACK. FINPACK divides the calculation of deferred liabilities into two parts – current inventories and capital assets. To calculate the deferred taxes on current inventories, the user enters the estimated marginal tax rate and the value of other current inventory adjustments. For estimating deferred liabilities on capital assets, the user enters the tax basis, estimated selling costs, and estimated marginal tax rate to assist FINPACK in calculating the estimated capital gains. These estimated liabilities are then totaled and shown as an additional liability on the Detailed Balance Sheet Executive Summary, thus lowering net worth.
Including deferred liabilities is optional on the Detailed Balance Sheet. Including deferred liabilities on the balance sheet has not been widely adopted, as business continuity is assumed. But, estimating deferred liabilities is important when considering business liquidation or for estate planning purposes. Learn more about deferred liabilities in FINPACK agriculture files in this online training module. Learn more about deferred liabilities in FINPACK commercial files in these online training modules for current inventories and capital leases.
Pauline Van Nurden is currently the Associate Director for the FINPACK Team. She has been with the team since 2017 as an Economist.
Prior to joining the FINPACK Team, she worked as a lender. This provides her valuable industry experience and knowledge in her work with FINPACK. Pauline holds a Master’s Degree in Agricultural Education and Bachelor’s Degree in Applied Economics, both from the University of Minnesota.