Sumit (PR) (336 Points)
08 October 2010HI friends,help me with this query
What's Logic of creating DTA wen there's loss?
I know this that when taxable income is less than accounting income then we create Deferred Tax liability as per AS 22.
but wen ther is a loss.it occurs mostly in both i.e. taxable loss and acounting loss happen at the same time.then why we create DTA inspite there being no difference in the two incomes?
please help.
thanking you
C.A. LINESH PATIL
(CA)
(910 Points)
Replied 08 October 2010
hello,
DTA & DTL is created for accounting differences which arises under two sets of books and subsequently get reversed.so creation of DTL & DTL depends of differences under two sets of books not on income or loss
and can you tell me full situation so that i can give you answer with better explanation.
Sumit
(PR)
(336 Points)
Replied 08 October 2010
linesh ya i know that differences due to different treatment in tax laws n accounts cause these DTA n DTL,i wrote that to be simple that when one income is less than other DTA/L is to be made.
in a question there was both accounting and income tax loss and still DTA was provided. loss as per tax can be carried forward but it can also be carried forward in accounts,so what is the different treatment which causes to create DTA.
Azim Khan ACA,CS,CMA*,LLB*
(Proprietor)
(1312 Points)
Replied 08 October 2010
Hi,
AS-22 asks for creation of DTL & DTA if there in a difference between both sets of books. (income tax & comapnies Act)
however, being a conservative standard, AS-22 asks to create DTA only if there a possibility of future taxable profits. but in case of loss making company, DTA can be created only if there is a convincing evidence with virtual certainity that the company will be able to generate future taxable profits.
AS-22 does not explain the convincing evidence with virtual certainity, its a matter of professional judgement.
AS-22 however is silent about the creation of DTL in case of loss making compnay. therefore, by following conservatism, DTL is also created in case of loss making company.
Thanks
C.A. LINESH PATIL
(CA)
(910 Points)
Replied 08 October 2010
AS 22 deals with the above the line items .and in accounts loss is shown as opening DR balance in P&L appropriation Account which is below the line.and provision for Tax in accounts is charged to current year profit.
But the amount of provision for tax is calculated as per income Tax books and after allowing set off of previous year loss.thats why in future year when we have to pay tax we will consider the loss arised in previous year.
further in accounts you cant set off losses for paying income tax, as income tax is paid as per income TAx books and in income tax losses is allowed to be set off for paying tax.
while in accounts loss is carried at below the line.
SO ITS ALL BECAUSE OF THAT PROVISION IS CREATED AS PER INCOME TAX BOOKS WHICH ALLOWED LOSSES TO BE SET OFF WHILE IN ACCOUNTS LOSSES IS TAKEN BELOW THE LINE.HAVE NO EFFECT ON DETERMINATION OF CURRENT YEAR PROFIT.
i hope you would have understand.
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