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CA Final · Financial Reporting · Ind AS 12 Income Taxes

Chandra Ltd has incurred losses for the last three years and has carried forward unused tax losses of ₹40,00,000 that can be set off against future taxable profits. It has no taxable temporary differences, no tax planning opportunities, and no convincing other evidence of sufficient future taxable profit. The tax rate is 25%. What is the correct treatment under Ind AS 12?

Chandra Ltd should not recognise a deferred tax asset on the unused losses. With a recent loss history and no convincing evidence of sufficient future taxable profit, recognition is not supported. It should disclose the amount of unused tax losses for which no deferred tax asset has been recognised.

  1. ARecognise a deferred tax asset of ₹10,00,000 because the losses have no expiry in the near term
  2. BRecognise a deferred tax asset of ₹5,00,000, being half of the potential amount, as a prudent estimate
  3. CDo not recognise a deferred tax asset, and disclose the amount of unused tax losses for which no deferred tax asset is recognisedCorrect
  4. DRecognise the ₹10,00,000 as a contingent asset in the balance sheet

Explanation

A history of recent losses means a deferred tax asset on unused losses is recognised only to the extent of convincing other evidence of future taxable profit. None exists here, so no asset is recognised. The unused losses of ₹40,00,000 are disclosed. Recognising 10,00,000 ignores the probability test.

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