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At 30 November 20X7, Holls has deductible temporary differences of $4·5 million which are expected to reverse
in the next year. In addition, Holls also has taxable temporary differences of $5 million which relate to the same
taxable company and the tax authority. Holls expects $3 million of those taxable temporary differences to reverse in 20X8 and the remaining $2 million to reverse in 20X9. Prior to the current year, Holls had made significant losses.examiner answer:At 30 November 20X7, Holls has deductible temporary differences of $4·5 million which are expected to reverse in the next year. In addition, Holls also has taxable temporary differences of $5 million which relate to the same taxable company and the
tax authority. Holls expects $3 million of those taxable temporary differences to reverse in 20X8 and the remaining $2 million
to reverse in 20X9. Thus a deferred tax liability of $1·25 million ($5 million x 25%) should be recognised and as $3 million of these taxable temporary differences are expected to reverse in the year in which the deductible temporary differences reverse,
Holls can also recognise a deferred tax asset for $0·75 million ($3 million x 25%)question: sir don’t we have to offset the 4.5m with 5m at the first place?
(please don’t copy and paste whole questions – try and rephrase in your own words)
It sounds as if the author is unconfident that the company will make taxable profits in the future.
My instinct would have been to offset the 5 and the 4.5, calculated a DTL, and then written a sentence about prudence / recovery of losses.
Bear in mind as always that your answer is not right / wrong – this exam is about your ability to explain these issues to ‘non-accountants’
Sir i have another problem regarding deferred tax asset, the director believes that there will be sufficient profit available against which it could be offset, but lets say the assumption is wrong, but how this will have an impact on the NET ASSET and (EBITDA)?
If you have to write off DT asset.
Dr DT expense in P&L – no impact on EBITDA because EBITDA is BEFORE tax.
Cr DT asset – reducing net assets.
Stephen Widberg wrote:If you have to write off DT asset.
Why don’t you recommend 2020 paper and highly recommend 2019 paper
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