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Dear sir,
As the answer, the deferred tax asset was calculated by $3m x 25% = $0.75m while the deductable temporary difference was $4.5m. Could you me explain me?
Thank sir,
My answer would be
All of the tax is payable to the same authority
Therefore we could offset deferred tax asset and liability
The net taxable temporary difference is 0.5m, so the deferred tax would be 25% of this
It would be a liability
The examiner is arguing that they may not be able to offset deferred tax asset and liability
In that case you can only recognise the deferred tax assets in respect of the losses to the extent that you can be confident that profits will arise in the future
So he is arguing that he can only recognise the deferred tax asset in respect of the profits expected in the next year
As always in the subject there is no absolutely right answer
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