06-17-2011, 01:29 AM
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by sohail kashif</i>
<br />Sir, actually query is that for example we have a company how have adjustable brought forward taxable losses and in the current year company has earned taxable income but the income of this year and that of next two years has been declared as exempt from tax by the federal Govt. Could the income of the current year be adjusted with the said losses or not cause this is exempt from tax.
Second whether we freeze those losses and use the same figure for calculation of deductible temporary differences under the calculation of deferred taxation. Further this period in which the income of the company has been declared as exempt will be counted for period for which business losses could be carried forward or not? i.e 6 years.
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As fully explained by Kamran, the deferred tax asset should not be recognized based on tax free period profits (In your case 3 years profit). If your projections for year 4-6 shows profit (which is taxable and against which your current year loss can be set off as per law) and which are sufficient enough to utilize loss then you can recognize deferred tax asset on loss of current year.
Regarding your second question, it is worth mentioning here that recognition of deferred tax should not be isolated from what tax law says. Deferred tax calculations are done considering tax laws as to how deductions (for asset) and taxability (for liability) would take effect in future period as per law effective as of calculation/reporting date. Having said that, the law should be clear enough on validitity period of losses and how it is effected if tax free period comes during that period.
<br />Sir, actually query is that for example we have a company how have adjustable brought forward taxable losses and in the current year company has earned taxable income but the income of this year and that of next two years has been declared as exempt from tax by the federal Govt. Could the income of the current year be adjusted with the said losses or not cause this is exempt from tax.
Second whether we freeze those losses and use the same figure for calculation of deductible temporary differences under the calculation of deferred taxation. Further this period in which the income of the company has been declared as exempt will be counted for period for which business losses could be carried forward or not? i.e 6 years.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
As fully explained by Kamran, the deferred tax asset should not be recognized based on tax free period profits (In your case 3 years profit). If your projections for year 4-6 shows profit (which is taxable and against which your current year loss can be set off as per law) and which are sufficient enough to utilize loss then you can recognize deferred tax asset on loss of current year.
Regarding your second question, it is worth mentioning here that recognition of deferred tax should not be isolated from what tax law says. Deferred tax calculations are done considering tax laws as to how deductions (for asset) and taxability (for liability) would take effect in future period as per law effective as of calculation/reporting date. Having said that, the law should be clear enough on validitity period of losses and how it is effected if tax free period comes during that period.