Deferred tax asset
A deductible temporary difference can give rise to future tax deductions when an asset is recovered or a liability settled. IAS 12 generally recognises a deferred tax asset to the extent that suitable taxable profit is probable, subject to its specified conditions and exceptions. Assess the nature, timing and availability of future taxable profits; reassess an unrecognised asset at later reporting dates. The deferred tax entry does not itself change current tax payable.
Worked example
An entity has a deductible temporary difference of 80 and expects sufficient suitable taxable profit. At an applicable tax rate of 25%, a deferred tax asset of 20 arises, assuming the recognition conditions are met and no exception applies.
Common mistake
Recognising a deferred tax asset in full solely because a deduction exists, without assessing whether the relevant future taxable profit is probable.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |