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CMA Final · Corporate Financial Reporting · Income Taxes (Ind AS 12)

At the reporting date, Kaveri Textiles Ltd holds an asset with a carrying amount of Rs 8,00,000 and a tax base of Rs 5,00,000. The recovery will generate taxable amounts. The tax rate enacted at the reporting date is 25%. The government has only announced, but not yet enacted or substantively enacted, a rise to 30% from next year. What deferred tax liability should be recognised?

The deferred tax liability is Rs 75,000. Deferred tax is measured using rates enacted or substantively enacted by the reporting date, here 25%, applied to the Rs 3,00,000 taxable temporary difference. A rate that has only been announced cannot be used.

  1. ARs 90,000
  2. BRs 75,000Correct
  3. CRs 2,00,000
  4. DRs 1,50,000

Explanation

Deferred tax is measured at rates enacted or substantively enacted by the end of the reporting period. Taxable temporary difference = 8,00,000 - 5,00,000 = 3,00,000. DTL = 3,00,000 x 25% = 75,000. Rs 90,000 wrongly uses the merely announced 30% rate.

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