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Sir.. Please clarify whether the deferred tax asset could possibly reduce the effective tax rate and how?
I understand that with DTL, as the movement in deferred tax is charged to P/L (this reduces the profit), increases the tax expense and increases.
DTA since it’s utilising losses against profit the taxability reduces and effective tax rate reduces.
Please correct if my understanding wrong..
My confusion is how DTA is recognised in SOPL
Assume loss is 20 and tax rate is 30%
DTA = 30%x20 = 6
Double entry
Dr DTA
Cr P&L (income tax line)So overall tax charge will be lower
So effective tax rate is lower (Total tax charge as % of PBT)
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