CERTYNEX IFRS ACADEMY

Harmont has 400,000 of deductible differences; its tax budget forecasts taxable profit of 250,000 after deducting these reversals (case assumption). It caps the deferred tax asset at 250,000 × 25% = 62,500. Where is the error?

Profit should have been assessed excluding reversal deductions (650,000): the asset covers the 400,000, i.e. 100,000.

The 25% rate cannot apply to a deferred tax asset.

Any asset should have been dropped: the forecast profit of 250,000 being lower than the 400,000 of differences, the condition fails.

The asset should have been computed on 250,000 − 400,000.