Rohit, Good question. Let me start of by giving you an example of how losses are used as a tax asset. Lets say your company made losses of Rs.20 lacs in 2010 and loss of Rs.10 lacs in 2011. Then your accumulated losses are Rs. 30 lacs(20+10). Now if you make a profit of Rs. 10 lacs in 2012, you dont have to pay any income tax, since you can net your 10 lac profit against your accumulated loses (30 lacs). So remaining accumulated loses = 30 lacs - 10 lacs = 20 lacs. So you dont have to pay taxes until your accumulated loses come down to 0.
Dec 11 2011 06:49 AM
This is why accumulated loses are treated as assets - since they have benefit for the company at a future point of time. A DTA is neither a cash or non-cash expenses. Its not an income sheet item, its a balance sheet item.
Does that answer your question ? Please let me know if you have more clarifications.