Deferred tax assets

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sanjiv kumar agarwal (Querist)
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31 July 2010
Pl give your expert opinion on the following querry.

The company is in loss for last 3 years. Deffered tax assets is being created for last 3 years.In the current year is loss but company has modified its plant and it is expected that in future profit will start.
In 2009-10, whether co should make deferred tax assets for losses.what are the basis of virtual certainty.
The company expects profit from 2010-11, so it will serve the purpose for virtual certainty.

Further, pl let me know if deferred tax assets is created on the asis of future projections, what will be consequences because AS-22 does not define the meaning of virtual certainty.

Thanks and Regards

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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31 July 2010 The areas of enquiry to determine virtual certainty,as you rightly said, is not spelt out in the standard. It is therefore, safe to assume when the evidence gathered establish beyond that the enterprise will be able to generate adequate future taxable income.
Evidence includes among others:-
1) Absolute contracts in hand.
2) significant sales orders back-log
Future projection alone,according to my understanding, is insufficient to judge virtual certainty.

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