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Hello,
One of the underlying reason for accounting for a deferred tax losses on unused tax losses is that an entity should have sufficient taxable temporary differences against which the unused tax losses can be offset.
Could you please explain the underlying reason for this requirement?
Thanks
A DT asset is created if we adjust for this temporary difference.
If the company fails to make profits in the future, then the tax losses will never be used.
So assets will be overstated.
This is an example of good old prudence.
🙂
Hello,
Thank your for your reply.
“A DT asset is created if we adjust for this temporary difference”
I am not sure that I’ve understood this part. Could you just briefly re explain it?
Thanks in advance.
Also, I would also add, what’s the link between “sufficient taxable temporary differences” & “unused tax losses.”
Thanks
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