Recovery position

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. IAS 12 Income Taxes defines a deferred tax asset (DTA) and states that it can be recognised for deductible temporary differences, unused tax losses and unused tax credits. To what extent can a deferred tax asset be recognised in financial statements?

  2. IAS 12 Income Taxes determines the value of a deferred tax asset on a basis that is different from many International Financial Reporting Standards. On what basis does IAS 12 value deferred tax assets?

  3. The availability of sufficient taxable temporary differences and any tax planning opportunities that allow the recovery of DTAs, are normally dependent upon tax laws and regulations. Why can the measurement of a DTA be a concern for issuers of financial statements?

  4. The assessment of a DTA is highly judgmental. The level of judgment may be dependent upon the nature of the tax loss which occurs. Which of the following statements is most likely to be true as regards the level of judgement required when assessing whether to recognise a DTA?

  5. Probability is the key judgment in the analysis of whether to recognise a DTA. The nature of the probability assessment is not defined in IAS 12. However, IAS 37 Provisions, Contingent Liabilities and Contingent Assets, defines the term probable. What assumption is made as regards the meaning of probability as regards the recognition of DTA?

  6. The main judgement in assessing the recognition of a DTA is the level of evidence of future taxable profits. The availability of future taxable profits may be determined by reference to the entity’s own business-planning forecasts. However, the forecasts for DTA purposes might include certain events that would be excluded from impairment calculations under IAS 36. Which of the following items might be added to the business forecasts prepared for impairment purposes under IAS 36?

  7. The projections for DTA purposes must be fairly consistent with the assumptions made in other areas of the financial statements. An exception arises where IAS 12 conflicts with other IFRS. Which of the following considerations arises out of conflict between IAS 12 and other IFRSs

  8. Entities face a possible challenge by regulators, auditors and tax authorities where they recognise large DTAs. The information contained in financial statements must be neutral and objective. What is the best form of evidence to support DTAs in financial statements

  9. Recently the IFRS Interpretation Committee identified diversity in practice regarding the recognition of a deferred tax asset that is related to a debt instrument measured at fair value. As a result, the IASB issued an exposure draft (ED) Recognition of Deferred Tax Assets for Unrealised Losses in August 2014. What is the view of the IASB as regards the recognition of a deferred tax asset that is related to a debt instrument measured at fair value?

  10. The IASB proposes, in the ED, to clarify the extent to which an estimate of future taxable profit includes amounts from recovering assets for more than their carrying amounts. What do the proposals state in this regard?