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ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes

Zeta Co has unused tax losses of $200,000 carried forward. Zeta has no taxable temporary differences and no history of profits, and no convincing other evidence that future taxable profit will be available. Under IAS 12, how should Zeta treat the tax losses?

Zeta should not recognise a deferred tax asset, because IAS 12 requires it to be probable that future taxable profit will be available against which the losses can be used. With a loss history and no convincing evidence, this is not met. The unrecognised losses are disclosed.

  1. ARecognise a deferred tax asset because tax losses can always be carried forward
  2. BDo not recognise a deferred tax asset, and disclose the amount of the unrecognised lossesCorrect
  3. CRecognise a deferred tax asset at 50% of the potential benefit
  4. DOffset the losses against deferred tax liabilities of other group entities

Explanation

IAS 12 allows a deferred tax asset for unused tax losses only to the extent it is probable that future taxable profit will be available. A history of losses with no convincing other evidence means recognition is not supported. Partial recognition at an arbitrary 50% has no basis, and the unrecognised amount must be disclosed.

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