Help with exceptional items in notes to accounts

[Raypeter]

Hello

For my University project I am currently analysing the annual report for Diageo plc. I am having issues with the exceptional items figure in the accounts. The notes to the accounts show Diageo makes a gain on exceptional items before tax but a loss after tax. This is due to loss of future tax ammoritsation and Diageo writing off deferred tax asset. What does this mean and what are the effects of this?


Thanks

 

[ukdaytrader]

Hello

For my University project I am currently analysing the annual report for Diageo plc. I am having issues with the exceptional items figure in the accounts. The notes to the accounts show Diageo makes a gain on exceptional items before tax but a loss after tax. This is due to loss of future tax ammoritsation and Diageo writing off deferred tax asset. What does this mean and what are the effects of this?


Thanks

DTA is an asset due to historic losses incurred for which tax relief cannot be claimed then but would have been claimed in the future. So losses are bought forwards. The deferred tax asset represents the future reduction of the tax bill that will be used to reduce the tax paid.

Writing off a deferred tax assset means that perhaps change in law or HMRC have disagreed with the losses so they cannot use them as they had planned to do. It is a one time item (not recurring ) so is treated as exceptional. When analyst look at the financials they tend to ignore exceptional as it will not arise every year as they value companies on recurring earnings.

Hope that makes sense.