Tax Adjustment on Negative Income

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Permalink Reply by Werner Reisacher on January 31, 2010 at 12:28am

Providing that your local tax authorities allow you to carry lossess incurred in one year back to previous or forward to futur years and compensate the incurred tax loss against tax payments made in those years, the "tax calculated on the loss" can be treated as a tax deferred asset available to be netted against tax liabilities in past or future years.
If the loss situation should continue, you need to carefully evaluate the fair value of such tax deffered assets. Otherwise you risk to over capitalize "potential tax savings" for future use if the company's profit potential will most likely never result in tax liabilities against which these assets could be applied.
Werner Reisache

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Permalink Reply by vijaya laxmi on February 2, 2010 at 7:55am

thanks werner.

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Permalink Reply by S. M. Mamun Ar Rashid on February 1, 2010 at 3:47pm

Year (1)
Income=100
Expense=200
......................
Loss= (100)
You have no profit, so no corporate tax will be applicable in Year (1).

Now, some governments may allow losses to carry forward for tax benefit. Consider Year (2) scenario of the company we are taking about:
Year (2)
Income=400
Expense=250
......................
Profit this year=150
Loss from last year=(100)
.....................
Taxable profit this year=50
Tax deducted this year=(15), @30%. Everything settled. Next year may be a new case. :)

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Permalink Reply by vijaya laxmi on February 2, 2010 at 7:54am

Thanks ,

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