Q1

The Lacklustre Mining Company Ltd has made losses for the years 2019 to 2022 and has recognised a deferred tax asset balance in the statement of financial position for each year’s losses.

The deferred tax asset closing balances were as follows:

($000s)         ($000s)         ($000s)         ($000s)

2019                2020             2021             2022

39,900           219,700       325,000        496,300

At the end of June 2022, the company has an acute cash shortage and debt covenants have meant that further funds are unlikely to available from the bank.

Required

Write a business letter to the Chief Financial Officer of The Lacklustre Mining Company Ltd providing advice as to whether there should be a deferred tax asset at the 30th June 2022 for carried forward tax losses.

Your advice should be based on the relevant paragraphs of AASB 112. You should also assess the validity of the treatment of the tax losses for each of the years under review.