Skip to content

CMA Intermediate · Financial Accounting · Accounting for Taxes on Income (AS 22)

Continuing the machine example, tax depreciation is Rs. 375 lakhs in Year 1 and Rs. 281 lakhs in Year 2, while accounting depreciation is Rs. 100 lakhs each year. At a 30% tax rate, what deferred tax expense is recognised in Year 2?

The Year 2 deferred tax expense is Rs. 54.3 lakhs. The timing difference originating in Year 2 is 281 less 100, or Rs. 181 lakhs, and 30% of that is the charge for the year. The cumulative liability of Rs. 136.8 lakhs is a closing balance, not the year's expense.

  1. ARs. 54.3 lakhsCorrect
  2. BRs. 82.5 lakhs
  3. CRs. 136.8 lakhs
  4. DRs. 84.3 lakhs

Explanation

Year 2 timing difference = 281 - 100 = 181 lakhs, still originating. Deferred tax for the year = 30% x 181 = Rs. 54.3 lakhs. Rs. 136.8 lakhs is the closing cumulative liability (30% x 456), not the year's charge; Rs. 82.5 lakhs is the Year 1 amount.

Did you get it right without looking?

One question tells you little. A timed set on Accounting for Taxes on Income (AS 22) shows your real accuracy, how long you take and where you lose marks.

Practise Accounting for Taxes on Income (AS 22)Free diagnostic mock

More Accounting for Taxes on Income (AS 22) questions