Recovery position

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?

To the extent that it is probable that accounting profit will be available against which the deductible temporary differences can be utilised

To the extent of the current 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

To the extent that it is possible that taxable profit will be available against which the deductible temporary differences can be utilised

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?

Nominal amount

Fair value

Value in use

Discounted future cash flows

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?

Because of the potentially long period of time before the net operating losses are recovered

Because the future estimates of profit are dependent upon the principles of IAS 36 Impairment of Assets

Because discounting is used to value DTAs

Because local tax legislation may prohibit the recognition of DTAs

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?

If the entity has sustained tax losses for many years, then less judgement may be involved in predicting future profits

If the loss was due to a non-recurring event then there will be significant judgement required

If the entity has generated profits for many years, then greater judgement may be involved in predicting future profits

If the loss was due to a non-recurring event then there will be little judgement required

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?

If a deferred tax asset is more than 50 percent likely to be recovered, then recognition is appropriate.

If a deferred tax asset is likely to be recovered, then recognition is appropriate

If a deferred tax asset is certain to be recovered, then recognition is appropriate

If a deferred tax asset is more likely than not to be recovered, then recognition is appropriate

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?

Physical damage to assets

Assets held for disposal

Market value declines

The impact of future restructuring activities or enhancements in asset performance

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

IAS 12 permits the discounting of DTAs (or liabilities), and therefore entities do not need to consider how they can appropriately reflect risk in their forecasts of future taxable profits

IAS 12 permits the discounting of DTAs (or liabilities), and therefore entities need to consider how they can appropriately reflect risk in their forecasts of future taxable profits

IAS 12 does not permit the discounting of DTAs (or liabilities), and therefore entities need to consider how they can appropriately reflect risk in their forecasts of future taxable profits

IAS 12 does not permit the discounting of DTAs (or liabilities), and therefore entities do not need to consider how they can appropriately reflect risk in their forecasts of future taxable profits

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

A strong earnings history or existing long-term contracts that will generate stable future profits

Strong earnings in the current period

Potential future earnings

Potential long-term contracts that will generate possible future profits

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?

Realised losses on debt instruments measured at cost and measured at cost for tax purposes give rise to a deductible temporary difference

Unrealised losses on debt instruments measured at cost and measured at fair value for tax purposes give rise to a deductible temporary difference

Realised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference

Unrealised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference

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?

The recovery of an asset for more than its carrying amount is unlikely to be probable where the asset was recently impaired and similarly where it is measured at cost and is used in a profitable operation

The recovery of an asset for more than its carrying amount is probable where the asset was recently impaired and where it is measured at cost and is used in a profitable operation

The recovery of an asset for more than its carrying amount is unlikely to be probable where the asset was recently impaired but is probable where it is measured at cost and is used in a profitable operation

The recovery of an asset for more than its carrying amount is likely to be probable where the asset was recently impaired but is unlikely to be probable where it is measured at cost

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?

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?

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?

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?

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

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

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?

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