Question

Seagull Ltd has a deferred tax asset as well as a deferred tax liability at 30 June 2017 would be disclosed in accordance with NZ IAS 12. The financial director is concerned with this situation as he argues that the IRD does not owe them anything and neither does Hamish owe anything to the IRD, other than the current tax payable. So why should amounts that are not currently an asset or liability be disclosed as such? Give a well-reasoned answer to the financial director.

Answer 1

Many cases deferred tax assets(DTA) and deferred tax liabilities(DTL) can be netted off. One very important factor we have to consider to do that is timing differences in DTA and DTL for netting off against each other. If we have a DTL related to a fixed asset depreciation which can be realized in 5 years while we have a DTA related to revenue which can be realized within 2 years. We should not net off DTA and DTL in this case.

IAS 12 requires to consider timing differences while recognizing DTL but DTA can be recognized if it is probable that we will receive a benefit in future. That's the main reason for reporting Deferred tax assets and Deferred Tax Liabilities separately under IAS 12.