The Lacklustre Mining Company Ltd has made losses for the years 2019 to 2022 and has recognized
Question:
The Lacklustre Mining Company Ltd has made losses for the years 2019 to 2022 and has recognized a deferred tax asset balance in the statement of financial position for each year’s losses. The deferred tax asset closing balances were as follows:
($000s) ($000s) ($000s) ($000s)
2019 2020 2021 2022
39,900 219,700 325,000 496,300
At the end of June 2022, the company has an acute cash shortage and debt covenants have meant that further funds are unlikely to be available from the bank.
Write a business letter to the Chief Financial Officer of The Lacklustre Mining Company Ltd providing advice as to whether there should be a deferred tax asset on the 30th June 2022 for carried forward tax losses. Your advice should be based on the relevant paragraphs of AASB 112. You should also assess the validity of the treatment of the tax losses for each of the years under review.
Financial Reporting Financial Statement Analysis and Valuation
ISBN: 978-0324302950
6th edition
Authors: Clyde P. Stickney