Dta
This query is : Resolved
24 September 2012
There is one company who has loss during first yr of operation..i didnt create DTA on unabsorbed loss n unabsorbed depn in that yr...i have created DTL only on WDV as per Cos act n Income TAx act...my query is that can i create DTA on that unabsorbed loss n depn next yr...will it create any prob
There is one company who has loss during first yr of operation..i didnt create DTA on unabsorbed loss n unabsorbed depn in that yr...i have created DTL only on WDV as per Cos act n Income TAx act...my query is that can i create DTA on that unabsorbed loss n depn next yr...will it create any prob
25 September 2012
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21 July 2024
Creating Deferred Tax Assets (DTA) on unabsorbed losses and unabsorbed depreciation depends on the accounting standards and tax laws applicable in your jurisdiction. Here’s a general guideline on how to approach this:
1. **Accounting Standards (Ind AS/AS)**: If your company follows Indian Accounting Standards (Ind AS) or Accounting Standards (AS), these standards require recognition of deferred tax assets (DTA) for unabsorbed losses and unabsorbed depreciation if it is probable that sufficient taxable income will be available against which such losses or depreciation can be set off in future periods.
2. **Income Tax Act**: Under the Income Tax Act in India, businesses can carry forward losses and depreciation for set-off against future taxable income subject to certain conditions and limitations.
Given your scenario:
- **First Year Loss**: If your company incurred a loss in the first year of operation, and you did not create a Deferred Tax Asset (DTA) on unabsorbed losses and unabsorbed depreciation in that year, you can typically create DTA in subsequent years when it becomes probable that taxable profits will be available.
- **Subsequent Year**: In the subsequent year, if your company expects to have taxable profits against which these losses and depreciation can be set off, you should assess the need to recognize DTA.
- **Probable Recovery**: The recognition of DTA is based on management's estimate of future taxable income. If it is probable (more likely than not) that sufficient taxable income will be available in future years to absorb the losses and depreciation, then DTA can be recognized.
- **Financial Statements Impact**: Recognizing DTA impacts the company’s financial statements, specifically the balance sheet and income statement, as it increases assets and reduces tax expense (which in turn increases profit).
**Potential Issues**:
- If there are uncertainties about the future profitability of the company or if there are changes in tax laws or regulations that could affect the realization of these assets, this could impact the recognition of DTA.
- Ensure compliance with both Accounting Standards and Income Tax provisions to avoid any discrepancies or issues during audits or regulatory reviews.
**Conclusion**:
You can create Deferred Tax Assets (DTA) on unabsorbed losses and unabsorbed depreciation in subsequent years, provided it is probable that taxable income will be available to offset these losses and depreciation. Consult with a qualified accountant or tax advisor to ensure compliance with applicable accounting standards and tax laws in your jurisdiction.
1. **Accounting Standards (Ind AS/AS)**: If your company follows Indian Accounting Standards (Ind AS) or Accounting Standards (AS), these standards require recognition of deferred tax assets (DTA) for unabsorbed losses and unabsorbed depreciation if it is probable that sufficient taxable income will be available against which such losses or depreciation can be set off in future periods.
2. **Income Tax Act**: Under the Income Tax Act in India, businesses can carry forward losses and depreciation for set-off against future taxable income subject to certain conditions and limitations.
Given your scenario:
- **First Year Loss**: If your company incurred a loss in the first year of operation, and you did not create a Deferred Tax Asset (DTA) on unabsorbed losses and unabsorbed depreciation in that year, you can typically create DTA in subsequent years when it becomes probable that taxable profits will be available.
- **Subsequent Year**: In the subsequent year, if your company expects to have taxable profits against which these losses and depreciation can be set off, you should assess the need to recognize DTA.
- **Probable Recovery**: The recognition of DTA is based on management's estimate of future taxable income. If it is probable (more likely than not) that sufficient taxable income will be available in future years to absorb the losses and depreciation, then DTA can be recognized.
- **Financial Statements Impact**: Recognizing DTA impacts the company’s financial statements, specifically the balance sheet and income statement, as it increases assets and reduces tax expense (which in turn increases profit).
**Potential Issues**:
- If there are uncertainties about the future profitability of the company or if there are changes in tax laws or regulations that could affect the realization of these assets, this could impact the recognition of DTA.
- Ensure compliance with both Accounting Standards and Income Tax provisions to avoid any discrepancies or issues during audits or regulatory reviews.
**Conclusion**:
You can create Deferred Tax Assets (DTA) on unabsorbed losses and unabsorbed depreciation in subsequent years, provided it is probable that taxable income will be available to offset these losses and depreciation. Consult with a qualified accountant or tax advisor to ensure compliance with applicable accounting standards and tax laws in your jurisdiction.
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