In 2020, Compton Ltd (Compton) incurred a loss of $1,260,000 for tax purposes, when the tax rate was 30%. Because the company had no prior taxable profit, it carried the entire loss forward. Considering the size of the tax loss, Compton management expected to recover only three-quarters of the tax loss by applying the tax loss to future taxable profit. On 1 January 2021, the income tax rate increased from 30% to 32%. In 2022, it expects that the reminder of the tax loss created in 2020 can fully recover by future taxable profits. Compton has a year end of 31 December. Required: Which of the following statement is considered not true in accordance with HKAS 12 ‘Income Taxes’? A. Deferred tax assets should be adjusted upward to $94,500 in 2022 B. Deferred tax assets and liabilities as at start of 2021 should be adjusted upward C. Deferred tax assets in January 2021 should be increased by $18,900 D. 75% of the tax loss in 2020 will be recognized as deferred tax credit
In 2020, Compton Ltd (Compton) incurred a loss of $1,260,000 for tax purposes, when the tax rate was 30%. Because the company had no prior taxable profit, it carried the entire loss forward. Considering the size of the tax loss, Compton management expected to recover only three-quarters of the tax loss by applying the tax loss to future taxable profit. On 1 January 2021, the income tax rate increased from 30% to 32%. In 2022, it expects that the reminder of the tax loss created in 2020 can fully recover by future taxable profits.
Compton has a year end of 31 December.
Required: Which of the following statement is considered not true in accordance with HKAS 12 ‘Income Taxes’?
| A. |
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| B. |
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| C. |
Deferred tax assets in January 2021 should be increased by $18,900 |
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| D. |
75% of the tax loss in 2020 will be recognized as deferred tax credit |
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