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when Deferred Tax Asset & Deferred tax liability arises?
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Answer Posted / shah king
The general principle as per IAS 12 is that deferred tax
liabilities should be recognised for all taxable temporary
differences.The exceptions are:
liabilities arising from initial recognition of goodwill
for which amortisation is not deductible for tax purposes;
liabilities arising from the initial recognition of an
asset/liability other than in a business combination which,
at the time of the transaction, does not affect either the
accounting or the taxable profit; and
liabilities arising from undistributed profits from
investments where the entity is able to control the timing
of the reversal of the difference and it is probable that
the reversal will not occur in the foreseeable future
Recognition of Deferred Tax Assets
A deferred tax asset should be recognised for deductible
temporary differences, unused tax losses and unused tax
credits to the extent that it is probable that taxable
profit will be available against which the deductible
temporary differences can be utilised, unless the deferred
tax asset arises from:
the initial recognition of an asset or liability other than
in a business combination which, at the time of the
transaction, does not affect the accounting or the taxable
profit.
Deferred tax assets for deductible temporary differences
arising from investments in subsidiaries, associates,
branches and joint ventures should be recognised to the
extent that it is probable that the temporary difference
will reverse in the foreseeable future and that taxable
profit will be available against which the temporary
difference will be utilised.
The carrying amount of deferred tax assets should be
reviewed at the end of each reporting period and reduced to
the extent that it is no longer probable that sufficient
taxable profit will be available to allow the benefit of
part or all of that deferred tax asset to be utilised. Any
such reduction should be subsequently reversed to the
extent that it becomes probable that sufficient taxable
profit will be available.
A deferred tax asset should be recognised for an unused tax
loss carryforward or unused tax credit if, and only if, it
is considered probable that there will be sufficient future
taxable profit against which the loss or credit
carryforwards can be utilised.
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