Homer has a reporting date of 30 September 2020 and prepares its financial statements in accordance with International Financial Reporting Standards.

Homer has a majority holding in Offshore, which operates in a foreign country that is suffering an economic recession, with high inflation and a falling exchange rate. The value of the functional currency of Offshore fell by more than 54% in the current financial year, compared to Homer's functional currency, the dollar.

Offshore had been constructing a head office building, but has temporarily ceased work because of the difficult economic conditions. Homer is negotiating to sell the development on behalf of Offshore and expects to achieve a significant gain on sale. A gain would be taxed as a capital gain in the foreign jurisdiction.

Offshore has negative equity and reported operating losses in the latest three years, including the current year. Offshore recognised a deferred tax asset for the tax losses, which may be carried forward indefinitely under local tax rules. Tax losses from operations may only be offset against profits from operations. Offshore did not disclose information to support recognition of the deferred tax asset.

Required:

Discuss the requirements for recognising deferred tax assets generally and advise on how to account for this case.(9 marks)