fb

Hard times for deferred tax

Hard times for deferred tax

Deferred tax assets are only assets if they are expected to generate an inflow of benefits.  In the current environment, impairments are hurting lots of companies; one of the World’s most high profile electronics giants included.

In January 2009, Hitachi Corp (New York and Tokyo listed) issued a statement aimed at warning capital markets about group’s intention to book a valuation allowance in the amount of 200 Yen billion against its deferred tax assets as at 31/03/09.

IAS 12 requires recognition of deferred tax assets (that is, “receivables” due from the tax authorities, as arising from the temporary deductible differences between the accounting and the tax bases of reporting entity’s assets and liabilities as at the reporting date) only if the reporting entity can prove recoverability of such assets, in the form of tax savings by reducing taxes payable in the future.  This is done by deducting calculated temporary deductible differences at the current reporting date from future expected taxable profits. If such future profits can no longer be reliably foreseen (and that is supposed to happen pretty often in economic downturn times, as it was with Hitachi’s case), any previously recognised deferred tax assets are impaired, with the consequent adverse effect on the entity’s reported net income for the year.  This makes bad times worse, as disappointing profits are made worse by tax asset write-offs.  Ouch.

As the columnist Paul Davis put it in the one of the September 2009 issues of the “American Banker” magazine, “’Deferred Tax Assets’ May Be Next Bottom-Line Hit”

Share this entry

Recent articles

View All Articles
Uber’s growing but why did its share price fall?
Feb 05, 2025
Title
Uber’s growing but why did its share price fall?
Excerpt

Uber Technologies Inc. has firmly established itself as a global leader in mobility services. Despite facing regulatory challenges […]

Stadiums, sponsorships and success: the evolution of football finances
Jan 24, 2025
Title
Stadiums, sponsorships and success: the evolution of football finances
Excerpt

The Deloitte Football Money League (DFML) is an annual publication that tracks and profiles the highest revenue-generating football […]

Waxing lyrical: Barbour’s £30M payday
Jan 22, 2025
Title
Waxing lyrical: Barbour’s £30M payday
Excerpt

With a fanbase that includes members of the Royal Family and leading music stars, Barbour coats have become […]

Harry Potter star’s gin goes global
Jan 18, 2025
Title
Harry Potter star’s gin goes global
Excerpt

When most people think of Emma Watson, they probably think of her as Hermione Granger in the Harry […]

How’s your lipstick?
Jan 15, 2025
Title
How’s your lipstick?
Excerpt

In the world of business, understanding consumer behavior is key. The “lipstick effect” looks at the interplay between […]

Retire or Re-Tie? : marriage for older people
Jan 08, 2025
Title
Retire or Re-Tie? : marriage for older people
Excerpt

Marriage trends have been shifting for decades. Whilst overall marriage rates have dipped by more than 20 percent […]

How to impress over a business lunch…
Jan 06, 2025
Title
How to impress over a business lunch…
Excerpt

Picture the scene. You’ve got an important business lunch coming up. You want to make a good impression […]

Comparing the Top 5 ACCA Platinum Online Course Providers
Jan 04, 2025
Title
Comparing the Top 5 ACCA Platinum Online Course Providers
Excerpt

If you’re looking to excel in your ACCA studies, choosing an ACCA Platinum Approved Learning Partner is a […]