Hi, After reading session 9 about deferred taxes, i have read a line that whether a firm is able to use its deferred tax assets depends if the taxable income is sufficient. Lets say if a firm is making loss, will the firm use valuation allowance to reduce it deferred tax assets? thanks
Well there needs to be a reasonable expectation of future profits in order to take advantage of previous losses. A real life example of this is Mayo vs. Citi right now.
its worth to remember that FASB govern the rule based principle which limits the free space for interpret ist like YES or NO while IASB gives more freedom of choice Read practice and read…
I think it depends on whether the company expects to earn profits in the future.
if it’s more likely than not (greater than 50% probability) that the firm will not have sufficient future income to offset some or all of its DTA, then it must use valuation allowance to reduce its net DTA. Omid