Payment of dividend
This query is : Resolved
21 August 2011
can a listed company propose & pay dividend out of current year pre tax profits if it has accumulated losses of previous years? The previous years accumulated losses are due to the provisions of deferred tax liabiliies.
21 August 2011
No dividend can be declared without complying with the Provisions of Section 205 and 350
21 August 2011
Sir i want to know if the dta/dtl is taken for the purpose of accumulated losses
09 August 2024
Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL) are accounting concepts that arise from differences between the book value of assets and liabilities and their tax base. These differences affect the recognition of income and expenses over time. Here’s how they relate to accumulated losses:
### **Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL)**
1. **Deferred Tax Asset (DTA):**
- **Definition**: DTA represents taxes that are expected to be recoverable in the future due to deductible temporary differences, unused tax losses, or unused tax credits.
- **Accumulated Losses**: Accumulated losses can lead to the recognition of a DTA. If a company has accumulated tax losses, it may be able to offset these losses against future taxable income, thus reducing future tax liabilities. The company recognizes a DTA for these losses.
- **Recognition Criteria**: A DTA for accumulated losses can be recognized if it is probable that the company will generate sufficient taxable income in the future against which the losses can be utilized. This involves assessing the company's future profitability and the ability to utilize the losses.
2. **Deferred Tax Liability (DTL):**
- **Definition**: DTL represents taxes that are expected to be payable in the future due to taxable temporary differences.
- **Accumulated Losses Impact**: Accumulated losses themselves do not directly create DTLs. However, DTLs may arise from differences in the timing of recognizing revenue and expenses for tax and accounting purposes.
### **Accounting Standards and Treatment:**
1. **Indian Accounting Standards (Ind AS) and International Financial Reporting Standards (IFRS):**
- **Ind AS 12 (Income Taxes)**: This standard covers the recognition and measurement of income taxes, including DTAs and DTLs. Accumulated losses are treated under this standard by recognizing DTAs to the extent that future taxable profits are expected.
- **IAS 12 (Income Taxes)**: Similar to Ind AS 12, IAS 12 provides guidance on accounting for income taxes, including the recognition of DTAs and DTLs.
2. **Recognition of DTA for Accumulated Losses:**
- **Future Taxable Income**: When recognizing a DTA for accumulated losses, it is essential to evaluate the likelihood of future taxable profits against which the losses can be applied. This involves considering factors such as past financial performance, forecasts, and other relevant information.
- **Valuation Allowance**: In some cases, if it is not probable that sufficient future taxable income will be available, a valuation allowance may be required to reduce the DTA to its realizable value.
### **Procedures:**
1. **Assess Future Profitability:**
- Evaluate the company's future profit projections to determine if the DTA related to accumulated losses can be realized.
2. **Record DTA:**
- If it is probable that future taxable profits will be available, recognize the DTA related to accumulated losses in the financial statements.
3. **Disclosures:**
- Ensure that adequate disclosures are made in the financial statements regarding the nature of the DTA, including the amount of accumulated losses and the expectations of future taxable income.
### **Summary:**
- **DTA**: Can be recognized for accumulated losses if future taxable profits are expected to be sufficient to utilize the losses.
- **DTL**: Generally not directly related to accumulated losses but arises from other timing differences in income and expenses.
- **Standards**: Follow Ind AS 12 or IAS 12 for guidance on recognizing and measuring DTAs and DTLs.
By adhering to these guidelines, you can accurately reflect the impact of accumulated losses on your financial statements and ensure compliance with relevant accounting standards.
### **Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL)**
1. **Deferred Tax Asset (DTA):**
- **Definition**: DTA represents taxes that are expected to be recoverable in the future due to deductible temporary differences, unused tax losses, or unused tax credits.
- **Accumulated Losses**: Accumulated losses can lead to the recognition of a DTA. If a company has accumulated tax losses, it may be able to offset these losses against future taxable income, thus reducing future tax liabilities. The company recognizes a DTA for these losses.
- **Recognition Criteria**: A DTA for accumulated losses can be recognized if it is probable that the company will generate sufficient taxable income in the future against which the losses can be utilized. This involves assessing the company's future profitability and the ability to utilize the losses.
2. **Deferred Tax Liability (DTL):**
- **Definition**: DTL represents taxes that are expected to be payable in the future due to taxable temporary differences.
- **Accumulated Losses Impact**: Accumulated losses themselves do not directly create DTLs. However, DTLs may arise from differences in the timing of recognizing revenue and expenses for tax and accounting purposes.
### **Accounting Standards and Treatment:**
1. **Indian Accounting Standards (Ind AS) and International Financial Reporting Standards (IFRS):**
- **Ind AS 12 (Income Taxes)**: This standard covers the recognition and measurement of income taxes, including DTAs and DTLs. Accumulated losses are treated under this standard by recognizing DTAs to the extent that future taxable profits are expected.
- **IAS 12 (Income Taxes)**: Similar to Ind AS 12, IAS 12 provides guidance on accounting for income taxes, including the recognition of DTAs and DTLs.
2. **Recognition of DTA for Accumulated Losses:**
- **Future Taxable Income**: When recognizing a DTA for accumulated losses, it is essential to evaluate the likelihood of future taxable profits against which the losses can be applied. This involves considering factors such as past financial performance, forecasts, and other relevant information.
- **Valuation Allowance**: In some cases, if it is not probable that sufficient future taxable income will be available, a valuation allowance may be required to reduce the DTA to its realizable value.
### **Procedures:**
1. **Assess Future Profitability:**
- Evaluate the company's future profit projections to determine if the DTA related to accumulated losses can be realized.
2. **Record DTA:**
- If it is probable that future taxable profits will be available, recognize the DTA related to accumulated losses in the financial statements.
3. **Disclosures:**
- Ensure that adequate disclosures are made in the financial statements regarding the nature of the DTA, including the amount of accumulated losses and the expectations of future taxable income.
### **Summary:**
- **DTA**: Can be recognized for accumulated losses if future taxable profits are expected to be sufficient to utilize the losses.
- **DTL**: Generally not directly related to accumulated losses but arises from other timing differences in income and expenses.
- **Standards**: Follow Ind AS 12 or IAS 12 for guidance on recognizing and measuring DTAs and DTLs.
By adhering to these guidelines, you can accurately reflect the impact of accumulated losses on your financial statements and ensure compliance with relevant accounting standards.
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