What could be possibly recognised as of the tax losses? Reading required: Learning objective 13.4.1 on page 417Group of answer choicesCurrent tax liabilityCurrent tax assetDeferred tax assetDeferred tax liability
Question
What could be possibly recognised as of the tax losses? Reading required: Learning objective 13.4.1 on page 417Group of answer choicesCurrent tax liabilityCurrent tax assetDeferred tax assetDeferred tax liability
Solution
Tax losses can be recognised as both a current tax asset and a deferred tax asset.
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Current Tax Asset: If a company has tax losses, it means that it has incurred more expenses than income in the financial year. This loss can be used to offset against taxable income in the current year, reducing the company's current tax liability. This creates a current tax asset.
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Deferred Tax Asset: If the company cannot utilise all of its tax losses in the current year, it can carry forward the remaining losses to offset against future taxable income. This creates a deferred tax asset.
However, tax losses cannot be recognised as a current tax liability or a deferred tax liability. These are obligations to pay tax, not potential benefits.
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