Skip to content

CA Intermediate · Advanced Accounting · AS 22 Accounting for Taxes on Income

Under AS 22, Tapi Pharma Ltd. has a deferred tax asset arising from unabsorbed depreciation and carry forward business losses, but it has no deferred tax liabilities and no convincing evidence of future taxable profit. How should it treat the deferred tax asset?

The deferred tax asset should be recognised only if there is virtual certainty, supported by convincing evidence, that sufficient future taxable income will be available. This stricter test applies to unabsorbed depreciation and carried forward losses, unlike the reasonable certainty test for other assets.

  1. ARecognise it only if there is virtual certainty supported by convincing evidence of future taxable incomeCorrect
  2. BRecognise it if there is reasonable certainty of future taxable income
  3. CRecognise it in full, since losses are always recoverable
  4. DDisclose it as a contingent asset and recognise it when received

Explanation

AS 22 requires that where there is unabsorbed depreciation or carry forward of losses under tax laws, a DTA is recognised only to the extent there is virtual certainty supported by convincing evidence of sufficient future taxable income. Reasonable certainty applies to other DTAs. Without such evidence it is not recognised.

Did you get it right without looking?

One question tells you little. A timed set on AS 22 Accounting for Taxes on Income shows your real accuracy, how long you take and where you lose marks.

Practise AS 22 Accounting for Taxes on IncomeFree diagnostic mock

More AS 22 Accounting for Taxes on Income questions