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Applying the probability recognition criterion to recognise a deferred tax asset for unused 'secondary tax on companies' credits

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Authors

Venter, Elmar Retief
Stiglingh, M. (Madeleine)

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Journal ISSN

Volume Title

Publisher

School of Accounting Sciences, UP

Abstract

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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Keywords

Secondary Tax on Companies, Probable, IFRS, IAS 12, IASB Framework, AC 501

Sustainable Development Goals

Citation

Venter, ER & Stiglingh, M 2006,'Applying the probability recognition criterion to recognise a deferred tax asset for unused 'secondary tax on companies' credits', Meditari : Research Journal of the School of Accounting Sciences, vol. 14, no. 2, pp. 83-95. [http://www.meditari.org.za]