Deferred Tax
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
13 July 2011
what is the provision for recognition of deferred tax liability in loss making company?
kindly provide reference..
thanks
kindly provide reference..
thanks
13 July 2011
If the company is 'virtually certain' that sufficient profit will emerge in the coming years, book deferred tax, otherwise no need to comply AS-22.
Querist : Anonymous
Querist :
Anonymous
(Querist)
13 July 2011
if i decide not to recognise deferred tax liability, then do i have mention the same in the annual reports of the compant that the company is not virtually certaion about the profit??
20 July 2024
In a loss-making company, the provision for recognition of deferred tax liability is guided primarily by accounting standards such as Ind AS 12 (or AS 22 under the previous standards). Here’s how deferred tax liabilities are generally treated in such situations:
### Provision for Recognition of Deferred Tax Liability in Loss-Making Company
1. **General Principle:**
- **Ind AS 12 (Income Taxes):** This standard requires recognition of deferred tax assets (DTAs) and deferred tax liabilities (DTLs) for all temporary differences, unless the deferred tax asset is not expected to be realized or the deferred tax liability is not expected to become payable.
- **AS 22 (Accounting for Taxes on Income):** Under the previous accounting standards, similar principles applied.
2. **Loss-Making Situation:**
- **Deferred Tax Assets:** In a loss-making company, deferred tax assets (DTAs) may arise from timing differences (such as depreciation) that will result in tax savings once the company returns to profitability.
- **Deferred Tax Liabilities:** Conversely, deferred tax liabilities (DTLs) may arise if there are temporary differences that will result in taxable amounts in future periods.
3. **Recognition Criteria:**
- **Virtual Certainty:** According to Ind AS 12, deferred tax assets are recognized only if it is probable that future taxable profit will be available against which the asset can be utilized. This includes considering the entity's forecasted profitability.
- **Disclosure:** If deferred tax assets or liabilities are not recognized due to lack of virtual certainty, this should be disclosed in the financial statements.
### Reference and Disclosure
- **Ind AS 12, Paragraph 15:** It states that deferred tax assets and liabilities should be recognized for all temporary differences, except in certain circumstances where it is not probable that taxable profit will be available.
- **Disclosure Requirements:** The company's annual financial statements should disclose significant judgments and estimates made in determining the amount of deferred tax assets and liabilities. If deferred tax liabilities are not recognized due to a lack of virtual certainty about future profitability, this should be explicitly disclosed.
### Decision Not to Recognize Deferred Tax Liability
- **Disclosure in Annual Reports:** If the company decides not to recognize a deferred tax liability due to uncertainty about future profitability, this decision should be clearly disclosed in the notes to the financial statements.
- **Impact on Financial Statements:** The decision not to recognize a deferred tax liability would affect the company's balance sheet and income statement. It may also affect the auditor's opinion and disclosures in the audit report.
### Conclusion
In summary, while accounting standards require recognition of deferred tax liabilities unless certain conditions are met, including virtual certainty of future taxable profits, companies are required to disclose significant judgments and decisions related to deferred tax assets and liabilities in their financial statements. If a deferred tax liability is not recognized due to uncertainty about future profitability, this should be disclosed in the annual reports to provide transparency to stakeholders.
### Provision for Recognition of Deferred Tax Liability in Loss-Making Company
1. **General Principle:**
- **Ind AS 12 (Income Taxes):** This standard requires recognition of deferred tax assets (DTAs) and deferred tax liabilities (DTLs) for all temporary differences, unless the deferred tax asset is not expected to be realized or the deferred tax liability is not expected to become payable.
- **AS 22 (Accounting for Taxes on Income):** Under the previous accounting standards, similar principles applied.
2. **Loss-Making Situation:**
- **Deferred Tax Assets:** In a loss-making company, deferred tax assets (DTAs) may arise from timing differences (such as depreciation) that will result in tax savings once the company returns to profitability.
- **Deferred Tax Liabilities:** Conversely, deferred tax liabilities (DTLs) may arise if there are temporary differences that will result in taxable amounts in future periods.
3. **Recognition Criteria:**
- **Virtual Certainty:** According to Ind AS 12, deferred tax assets are recognized only if it is probable that future taxable profit will be available against which the asset can be utilized. This includes considering the entity's forecasted profitability.
- **Disclosure:** If deferred tax assets or liabilities are not recognized due to lack of virtual certainty, this should be disclosed in the financial statements.
### Reference and Disclosure
- **Ind AS 12, Paragraph 15:** It states that deferred tax assets and liabilities should be recognized for all temporary differences, except in certain circumstances where it is not probable that taxable profit will be available.
- **Disclosure Requirements:** The company's annual financial statements should disclose significant judgments and estimates made in determining the amount of deferred tax assets and liabilities. If deferred tax liabilities are not recognized due to a lack of virtual certainty about future profitability, this should be explicitly disclosed.
### Decision Not to Recognize Deferred Tax Liability
- **Disclosure in Annual Reports:** If the company decides not to recognize a deferred tax liability due to uncertainty about future profitability, this decision should be clearly disclosed in the notes to the financial statements.
- **Impact on Financial Statements:** The decision not to recognize a deferred tax liability would affect the company's balance sheet and income statement. It may also affect the auditor's opinion and disclosures in the audit report.
### Conclusion
In summary, while accounting standards require recognition of deferred tax liabilities unless certain conditions are met, including virtual certainty of future taxable profits, companies are required to disclose significant judgments and decisions related to deferred tax assets and liabilities in their financial statements. If a deferred tax liability is not recognized due to uncertainty about future profitability, this should be disclosed in the annual reports to provide transparency to stakeholders.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Two pancard
- Query Regarding Income Tax Rate on Gain from Transfer of Partnership Stake (LLP Partner)
- Transfer of MF
- Can we claim ITC in 28%
- Regarding E-invoice Generation
- TDS on Immovable property to an NRI
- How to correct Form 26QB
- TDS APPLICABILITIY
- Can we claim RCM ITC paid on Gst audit of earlier years,
- CA Final exam Form
- Spice form, ? mark comes in address
- Tds on GST in connection with sale to public company
- B2B Amendment
- Restoration of certificate of practice
- Regarding change in correspondence address in SSP portal
- Regarding Advance Tax not claimed in the Return of Income for A.Y. 2025-26
- No Compliences after incorporation
- USEFUL LIFE OF USED/SECOND HAND COMMERCIAL VEHICLES
- Claiming TDS deducted by builder on Hardship compensation and Corpus
- Address Change to another state of a Registered Trust with 12AB approval
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
CAclubindia
