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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Godavari Pharma Ltd reports quarterly. In Q1 of 2026-27 it earned profit before tax of ₹20,00,000 and in Q2 ₹30,00,000. The estimated weighted average annual tax rate was 30% in Q1 and, after a revision of estimate in Q2, 25% for the full year. Tax expense for Q1 was booked at the then rate. What tax expense should be recognised in Q2 as per AS 25?

Q2 tax is ₹6,50,000. The revised 25% rate applies to cumulative profit of ₹50,00,000, giving ₹12,50,000, and the ₹6,00,000 already booked in Q1 is deducted. The change in estimate is adjusted in the current interim period, not restated.

  1. A₹6,50,000Correct
  2. B₹7,50,000
  3. C₹7,00,000
  4. D₹8,00,000

Explanation

Cumulative profit to Q2 = ₹50,00,000. At the revised 25% the cumulative tax = ₹12,50,000. Q1 tax booked = 30% of ₹20,00,000 = ₹6,00,000. Q2 tax = 12,50,000 - 6,00,000 = ₹6,50,000. Using 25% only on Q2 profit gives ₹7,50,000, which ignores the catch-up of Q1.

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