Why are accumulated losses treated as Deferred Tax Assets?



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sir i was going through the tax video & in it u said that the accumulated losses are treated as deferred tax asset...i want to know that why are the accumulated losses are treated as DTA & is DTA & DTL a non cash expense , if yes then why?

3 Answer(s)


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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.

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.

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Fully satisfied with your reply.

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I hv one doubt, loss adjusted against profit means not paying tax so it's a permanent diff, then why we create DTA