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CA Final · Financial Reporting · Ind AS 12 Income Taxes

Bharat Ltd bought a machine on 1 April 2024 for ₹10,00,000. In its books it charges straight-line depreciation over 5 years (₹2,00,000 a year). For tax, it claimed depreciation of ₹4,00,000 in the first year. The tax rate is 25%, and there is no other difference. At 31 March 2025, what deferred tax balance should Bharat Ltd recognise on this machine?

Bharat Ltd should recognise a deferred tax liability of ₹50,000. The carrying amount is ₹8,00,000 and the tax base is ₹6,00,000, giving a taxable temporary difference of ₹2,00,000. Taxed at 25%, this produces the liability, because the asset will generate more taxable economic benefit than its deductible amount.

  1. ADeferred tax liability of ₹50,000Correct
  2. BDeferred tax asset of ₹50,000
  3. CDeferred tax liability of ₹1,00,000
  4. DDeferred tax liability of ₹1,50,000

Explanation

Carrying amount is 10,00,000 - 2,00,000 = 8,00,000. Tax base is 10,00,000 - 4,00,000 = 6,00,000. The taxable temporary difference is 2,00,000, and at 25% the DTL is 50,000. A DTL of 1,00,000 wrongly applies the rate to the tax depreciation of 4,00,000.

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