MA511 Report On Recognisation Of Deferred Tax Assets Of Green Wine Ltd Assessment 3 Answer

Answer :

1. Tax effect accounting in accordance with AASB 112

The AASB 112 is in relation to the accounting for the income taxes and it deals with the accounting of current and future tax outcomes which arises from the settling or the future recovery of amount which are carried by the assets, transactions or events that raise in the current period and are recorded in the financials of the entity (Morris, 2017). The standard enforces the entities to report the effect of transaction or event in the same manner as it record or recognize the event in the P&L. in case the event are recorded outside P&L the tax impact would also be recorded outside the P&L. in addition to this, the standard recognize the deferred tax asset and liabilities arising from the tax credits or losses (Morris, 2017).

Therefore, in the present case as mentioned in the case study, the loss that has arisen from the bush fire is required to be recognized by the company in similar way it is recognized in the P& L account. The loss will result in the decreasing of revenue for the company (Utari, & Widiastuti, 2016).

2. Recognition of deferred tax assets and deferred tax liabilities

As per the standard the taxable temporary difference shall be recognized under the deferred tax liability. The events which are in relation to the investment in branches, subsidiaries, joint ventures are all recognized in the taxable temporary difference whereas the transaction arising from the initial goodwill recognition, asset and liability not being business combination are not recognizable under the deferred tax liability (Bauman, & Bowler, 2018).

The deductible temporary difference to the extent of taxable gains shall be recognizable under the deferred tax asset. The difference arising in association with the investment of branches, subsidiaries and joint agreements interest shall all be recognized under the deductible temporary difference. However, the DTA arising from the initial recognition of assets or liability which is not business combination shall not be recognizable (Widiatmoko, & Mayangsari, 2016).

The major difference in relation to the recognition of DTA and DTL is in regard to the goodwill recognition. The initial recognition of goodwill is done in case of deferred tax asset and is not taken into account in case of deferred tax liability.

3. Tax loss

The tax loss can be defined as the loss arising from the period where the amount of income tax becomes recoverable and it is determined by the taxation authorities in accordance with the prevailing rules. The tax loss is determined from the temporary difference which is calculated when the amount carries by the asset and liabilities is settled or recovered. The tax losses are recognizable under the deferred tax asset that has some of the unused tax loss. The loss arising from the income tax is adjusted with the taxable profit and it can be further used in the later years for the settlements i.e. can be carried for the future under the head DTA (Edwards, 2018).

4. Factors to be considered when deferred tax assets relating to tax loss are to be recognized

There is a similarity in the recognition of deductible temporary difference and the DTA in context of the unused tax loss. There is an estimation as per the standard that if the unused tax losses recorded by the company is high than there are high chances that there may not be future taxable profit for the settling of the losses (Badenhorst, & Ferreira, 2016). Therefore, if the organization has an increasing graph of loss, the entity can recognize the tax loss or credit only up to the limit where taxable temporary difference is available for the settlement of tax loss or credit or there must be the evidence that there will be future taxable profits for the settlement of losses (Bauman, & Bowler, 2018).

5. Recognition disclosure of DTA, DTL and tax loss by selected entity

The ASX listed company whose financials have been studied for the recognition and disclosure policies in relation to the deferred tax assets, deferred tax liabilities and tax losses is Abacus property group. The company recognizes the deferred tax asset at the deductible temporary difference, carry forward of unused tax losses up to the extent taxable profit is available for the settlement of losses. It is not recognizable when the DTA is in relation to the deductible temporary difference which arises from the initial recognition of asset or liability not being a business combination and the deductible difference is in association with the investment in subsidiaries, associates and interest in joint arrangement. The amount is reviewed at the balance sheet data and is subtracted to the extent if there arises a probability there will be sufficient taxable profit for the settlement (Bauman, & Bowler, 2018).

The deferred tax liabilities are recognized at the taxable temporary difference except the DTL arising from the initial recognition of asset or liability that is not in business combination and when the taxable difference is in association with the investment in joint venture, associates and subsidiaries.

The company has disclosed the net deferred tax asset under the non-current asset head of the balance sheet and the deferred tax liabilities under the non-current liabilities head of the balance sheet. The notes to the financial statement present what comprises of the deferred tax assets and the deferred tax liability. The image below is a presentation of the notes to the financial statement of the company (Edwards, 2018).

6. Recommendation as to how income tax loss can provide future benefits

The tax losses are referred to as losses that are incurred in the current period by the company or have been carried forward by the company which can be settled from the taxable profits of the company. the taxable losses are a beneficial element for the settling or reducing of taxable profit that are recorded by the company in the current period r may record in the future. Nonetheless, it is mandatory to understand that if the company records a continuous loss and is carrying forward the unused tax loss than there is a high probability that there may not be taxable profit for the future as well and the loss shall not be allowed to be recorded then (Badenhorst, & Ferreira, 2016).