oa Meditari : Research Journal of the School of Accounting Sciences - Applying the probability recognition criterion to recognise a deferred tax asset for unused 'secondary tax on companies' credits
|Article Title||Applying the probability recognition criterion to recognise a deferred tax asset for unused 'secondary tax on companies' credits|
|© Publisher:||University of Pretoria|
|Journal||Meditari : Research Journal of the School of Accounting Sciences|
|Author||E.R. Venter and M. Stiglingh|
|Publication Date||Jan 2006|
|Pages||83 - 95|
|Keyword(s)||AC 501, IAS 12, IASB Framework, IFRS, Probable and Secondary Tax on Companies|
According to AC 501, Accounting for 'Secondary Tax on Companies (STC)', a deferred tax asset for unused STC credits is recognised if it is probable that an entity will declare dividends against which unused STC credits can be used. This study examined the dividend declaration profile of companies recognising a deferred tax asset for unused STC credits to satisfy AC 501. In a literature review, the term 'probable' was analysed, showing that future dividend declarations are only regarded as 'probable' if their likelihood is 64% to 79%. A survey revealed that 45% of the surveyed companies with unused STC credits recognised a deferred tax asset for unused STC credits in their 2004 financial statements, and therefore believed they had satisfied the probability recognition criterion in AC 501. The survey also showed that companies that recognised a deferred tax asset have a dividend policy shareholders are familiar with, and most declare dividends annually. These two indicators can help assess the probability of future dividend declarations.
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