Deffered Tax asset

A Deferred Tax Asset (DTA) arises when there is a difference between the carrying amount of an asset or liability in the financial statements and its tax base, which results in deductible amounts in future periods.

To account for a DTA and carry it forward, follow these standard accounting practices:

1. Recognition and Carry Forward

You do not need to "pass an entry" to carry forward the DTA balance itself at the end of the year. The DTA is an asset that simply remains on your Balance Sheet as part of your closing balances. When you prepare the opening balance sheet for the next financial year, the closing balance of the DTA from the previous year is automatically carried forward as the opening balance.

2. Adjusting the Entry (If required)

If, at the end of a financial year, you determine that the DTA needs to be adjusted (either increased due to new deductible differences or decreased because you have utilized the tax benefit), you pass the following entries:

• To create or increase a DTA:

  • Debit: Deferred Tax Asset A/c

  • Credit: Deferred Tax Income (Statement of Profit & Loss)

• To reverse or decrease a DTA:

  • Debit: Deferred Tax Expense (Statement of Profit & Loss)

  • Credit: Deferred Tax Asset A/c

Important Consideration

Before recognizing or carrying forward a DTA, you must assess the "probability of realization." Under accounting standards (such as Ind AS 12 or AS 22 in India), you should only recognize a DTA to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. If it becomes unlikely that you will have sufficient future taxable profits, you may be required to write down or reverse the DTA.

Summary: You do not need a special entry to carry forward a DTA; it is carried forward as part of your opening Balance Sheet balances. You only pass journal entries at the end of each reporting period to adjust the DTA value based on current tax assessments and the probability of future taxable income.