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Tax losses
The directors of Hudson wish to recognise a material deferred tax asset in relation to $250 million of unused trading losses which have accumulated as at 31 December 20X2.Answer:
In relation to unused trading losses, the carrying amount is zero since the losses have not yet been recognised in the financial statements of Hudson.How do we know that the trading losses have not been recognised in the FS, shouldn’t the trading losses already being included in the profit figure?
Thank you, sir.
I think that the answer means:
1. The loss has been recognised in the accounts. If they haven’t done that – they’ll end up in prison!
2. The tax effect of the losses has not been recognised in the accounts.Learning point is that you can’t recognise DT asset unless you expect profits in the future.
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