Practical tip: Computational guidance when a valuation allowance is required under ASC 740 and there are deferred tax liabilities related to indefinite-lived assets (No. 2010-10)

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Accounting Standards Codification, Topic 740, Income Taxes( ASC 740), requires companies to record a valuation allowance for deferred tax assets (DTA) that, based on all available evidence, are not expected to be realized based on ACS 740's more-likely-than-not test. When determining the appropriate valuation allowance, companies should be mindful of what is commonly referred to as the "naked credit" -- a situation in which deferred tax liabilities related to indefinite-lived assets cannot be used as a source of taxable income to support the realization of deferred tax assets. This PwC Practical tip describes the "naked credit" effect and provides examples to assist you.