Reassessment of deferred tax assets

Learning objectives

• Explain the reassessment at each reporting date of recognised and unrecognised deferred tax assets.L2
• Record the reduction of a deferred tax asset and its subsequent reversal.L2, L3

Normative references

• IAS 12At the end of each reporting period, the entity reassesses unrecognised deferred tax assets and recognises a previously unrecognised asset to the extent that it has become probable that future taxable profit will allow it to be recovered.
• IAS 12 §56The carrying amount of a deferred tax asset is 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 it to be utilised; the reduction is reversed to the extent that it becomes probable again that sufficient taxable profit will be available.
• IAS 12 §67A business combination may change the probability of realising a pre-acquisition deferred tax asset of the acquirer (for example, by using its unused tax losses against the future taxable profit of the acquiree); the acquirer recognises the change in its deferred tax asset in the period of the business combination, without including it in the accounting for the business combination.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

17 questions

• Yverdal carries a deferred tax asset of {carrying_dta} on its tax losses carried forward. At the reporting date, the loss of a major customer reduces the losses that are probably usable to {usable_losses} (case assumption). Tax rate: {tax_rate}%. Record the closing entry.L2
• At each reporting date, the entity reassesses the deferred tax assets it had not recognised.L2
• A reduction in the carrying amount of a deferred tax asset is final: it cannot be reversed later.L2
• Where a business combination makes recoverable a previously unrecognised deferred tax asset of the acquirer, the change is included in the accounting for the combination and reduces goodwill.L2
• When must the carrying amount of a deferred tax asset already recognised be reduced?L2
• Ambrelle had not recognised an asset for its tax losses. This year, it signed profitable contracts that make probable taxable profit covering part of these losses. What does it do at the reporting date?L2
• Brisvane carries a deferred tax asset of {carrying_dta}. At the reporting date, the closure of a plant reduces expected taxable profits: only an asset of {recoverable_dta} remains probably recoverable (case assumption). Compute the reduction and the asset at the reporting date.L2
• At Corlavine, the deferred tax asset amounted to {carrying_dta}. The revision of the budgets (case assumptions) brings the probably recoverable asset down to {recoverable_dta}. Compute the reduction and the closing balance.L2
• Dorsane had recognised no asset on its losses carried forward. At 31 December 20X6, its lasting return to profit makes it probable that {newly_usable_losses} of these losses will be used (case assumption). Tax rate: {tax_rate}%. Record the closing entry.L2
• Last year, Estoubrane reduced its deferred tax asset by {prior_write_down}. This year, new contracts make it probable again that {reinstated} of that reduction will be recovered (case assumption). Record the entry at the reporting date.L2
• Fréjac, which had not recognised an asset for its losses, acquires a business whose future profits, under the tax law of the case, will be able to absorb those losses. How does it account for the deferred tax asset that has become recoverable?L3
• At the end of 20X5, Gimelane carries a deferred tax asset on all of its {unused_losses} of losses carried forward. At the end of 20X6, only {usable_y2} are probably usable; at the end of 20X7, after a recovery, {usable_y3} become so (case assumptions; losses not used in the meantime). Tax rate: {tax_rate}%. Compute the 20X6 reduction and the 20X7 reversal.L3
• Hérisvane had recognised no asset on {unrecognised_dtd} of deductible differences and {unrecognised_losses} of losses carried forward. At the reporting date, winning a multi-year contract makes probable taxable profit of {probable_profit} (excluding reversal deductions) within the relevant periods (case assumption). Tax rate: {tax_rate}%. Compute the asset to be recognised and the amount still with no asset.L3
• On 1 October 20X6, Isarde absorbs a profitable business; under the tax law of the case, the future profits of the combined entity will be able to absorb {newly_usable_losses} of Isarde's losses, which had not been recognised. Tax rate: {tax_rate}%. Record the entry for Isarde's deferred tax asset.L3
• Jalavoux carries a deferred tax asset of {dta_on_differences} on deductible differences, still covered by reversals of taxable differences (data), and of {dta_on_losses} on losses carried forward. The loss of a contract leaves only {recoverable_share}% of the asset on losses probably recoverable (case assumption). Record the closing entry.L3
• Kerdouvan did not recognise an asset for 900,000 of losses carried forward in 20X2. Since then, it has made taxable profit every year, signed multi-year contracts and its documented forecasts cover 600,000 of remaining losses. Its accountant keeps recognising no asset 'for consistency with 20X2'. What do you conclude (25% rate)?L3
• In 20X5, Lescurane reduced its deferred tax asset from 200,000 to 50,000. In 20X6, evidence makes it probable again that an asset of 170,000 will be recovered (case assumption). The CFO considers the 20X5 reduction 'final'. What is recognised in 20X6?L3