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CA Intermediate · Advanced Accounting · AS 22 Accounting for Taxes on Income

Ganga Foods Ltd. has an opening deferred tax liability of Rs 1,20,000 at a 30% rate. During the year, the cumulative timing difference (tax depreciation in excess of book depreciation) is Rs 5,00,000 at year end, and the tax rate remains 30%. What is the deferred tax charge/credit to the statement of profit and loss for the year?

The statement of profit and loss is charged Rs 30,000. The closing deferred tax liability is 30% of Rs 5,00,000, which is Rs 1,50,000. Since the opening liability was Rs 1,20,000, the increase of Rs 30,000 is recognised as deferred tax expense for the year.

  1. ACharge of Rs 30,000Correct
  2. BCredit of Rs 30,000
  3. CCharge of Rs 1,50,000
  4. DCharge of Rs 1,20,000

Explanation

Closing DTL = 30% x 5,00,000 = 1,50,000. Opening DTL is 1,20,000. Increase of Rs 30,000 is a deferred tax expense. Rs 1,50,000 is wrong as it ignores the opening balance.

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