IAS 12 Income Taxes

Question 1

Evidence of insufficient taxable profits

Answer 1

1. Current year profits derived from non-operational income such as gain on disposal or foreign exchange gains
2. History of prior years’ losses
3. Erractic(unprofitable) profits
4. Market experience declining trends

Question 2

Evidence of sufficient taxable profits

Answer 2

1. Reliability of previous budget vs actual
2. History of prior years profits
3. Forecast of future taxable profits
4. Expectation of market demand and competitors reaction
5. Announcement of new contracts or orders
6. Tax planning opportunities

Question 3

When deferred tax assets shall be recognized?

Answer 3

DTA shall only be recognized for the followings:

1. Deductible temporary differences
2. Unused tax losses
3. Unused tax credits

DTA shall be only be recognized based on the limitation of future taxable profits available to offset the DTA in future.

Question 4

Positive indications of future profits

Answer 4

Should be based on reasonable assumptions with confirmed orders or empirical evidence about sales growth.

Any high growth rate are unreasonable and should be rejected.

The projection should ignore any new products or markets which was not launched yet.