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Deferred tax asset on unused losses

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Deferred tax asset on unused losses

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by Stephen Widberg.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 28, 2024 at 6:56 pm #704639
    Anonymous
    Inactive
    • Topics: 2
    • Replies: 2
    • ☆

    Hi there, I hope you’re well?

    I’m currently struggling to get my head around the double entries which would occur to recognise deferred tax assets on unused losses in line with IAS 12. In my Kaplan Integrated Workbook (and other research on this forum / online), I’ve only been able to come across instances where it is not considered probable that the entity will generate sufficient future taxable profits for the deferred tax asset to be used against/utilised, therefore meaning recognition should not occur of a deferred tax asset, but I’ve never seen a scenario where it should be recognised.

    My concern here is that in a long-form question in the exam I may come across a business who are considered to generate sufficient future taxable profits to utilise a deferred tax asset – what would the double entries be here please?

    In my mind I’ve pictured it as being:

    In the year of loss:

    Dr deferred tax asset (equal to loss incurred * applicable tax rate)
    Cr tax expense in SPL (positive entry in P/L to acknowledge that this will be offset in future periods)

    In a year of taxable profit being generated:

    Cr deferred tax asset
    Dr tax expense

    Unfortunately the above doesn’t seem logical to me though as it would increase the tax expense during the year of profit which defeats the purpose of having an unused loss which should reduce your tax expense for the period.

    Please may I have your help with this?

    Thanks.

    April 30, 2024 at 6:39 am #704724
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3404
    • ☆☆☆☆☆

    Your double entry is perfect.

    DT aims to match the TOTAL tax charge against the TOTAL profit or loss.

    In the loss making year a tax CREDIT is matched against the LOSS

    In the profit making year a tax DEBIT is matched against the PROFIT

    🙂

    April 30, 2024 at 2:26 pm #704746
    Anonymous
    Inactive
    • Topics: 2
    • Replies: 2
    • ☆

    Thank you very much for confirming, Stephen. I really appreciate it!

    May 1, 2024 at 7:58 am #704761
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3404
    • ☆☆☆☆☆

    🙂

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    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Deferred tax asset on unused losses’ is closed to new replies.

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