Question

A deferred tax asset valuation allowance needs to be used when a company is unlikely to generate profits in the future.

Group of answer choicesTrue

False

Answer 1

True      

A Deferred tax valuation account is a contra account to a deferred tax asset which show deferred tax cannot be used in future due to non availability of sufficient taxable income. A Deferred tax asset account arises due to higher taxes paid in current year based on taxable income. These higher taxes will be offset in future year income tax based on taxable income available. Hence if no taxable income is available in future deferred tax cannot be utilised. Hence Deferred tax valuation account is used.