ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes
Halden Co has unused tax losses of $3m. Tax rate is 30%. Halden has taxable temporary differences of $1m expected to reverse next year, and forecasts suggest taxable profits of $0.5m in future years from its existing business. The losses do not expire. Management also proposes a one-off tax planning sale of a property that would generate a $0.8m taxable gain, which is within management's control and feasible. What deferred tax asset can Halden recognise for the losses?
The deferred tax asset is $0.69m. Probable taxable profit available is $1m from reversing temporary differences, $0.8m from the feasible tax planning sale and $0.5m forecast profit, totalling $2.3m, which is below the $3m losses, and at 30% gives $0.69m.
- A$0.90m
- B$0.69mCorrect
- C$0.39m
- D$0.45m
Explanation
Without being exhaustive, the approach is that the asset is recognised to the extent that probable taxable profit exists. Supporting taxable profit is $1m from reversal of temporary differences plus $0.8m planning gain, a total of $1.8m; the $0.5m forecast profit in future years is not usable here as stated for an uncapped period. This option, however, is not exact. Using $1.8m x 30% gives $0.54m; adding the $0.5m forecast gives $2.3m x 30% = $0.69m. The losses of $3m exceed $2.3m so the cap is $2.3m.
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