Page 209 - SBR Integrated Workbook STUDENT S18-J19
P. 209
Tax
Example 5
Unused losses
Cate incurred substantial tax allowable losses in the financial years 31 May
20X1 to 31 May 20X4. The losses, which can be carried forward to reduce
taxable profits in future periods, expire during 20X8.
In the financial year to 31 May 20X5 Cate made a small profit before tax. This
included significant non-operating gains. Cate recognised a deferred tax asset
as at 31 May 20X5 on the basis of this profit as well as budgeted performance
in the years from 20X6 to 20X8. The budgets included high growth rates in
profitability. Cate argued that the budgets were realistic as there were positive
indications from customers about future orders. Cate also had plans to expand
sales to new markets and to sell new products whose development would be
completed soon.
Discuss whether Cate’s recognition of a deferred tax asset is in
accordance with IAS 12 Income Taxes.
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