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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Kaveri Appliances Ltd earns annual profit before tax estimated at ₹80,00,000 for 2025-26. Its tax rate is expected to be 25% on the first ₹50,00,000 of taxable income and 30% on the balance (weighted average rate applies for the whole year). Profit before tax for the first quarter was ₹15,00,000. Assuming no other variations, what tax expense should be recognised in the first quarter under AS 25?

Tax in an interim period is computed by applying the estimated weighted average annual effective tax rate to interim profit. Here the rate is 26.875 percent, giving a first-quarter charge of ₹4,03,125.

  1. A₹3,75,000
  2. B₹4,12,500Correct
  3. C₹4,50,000
  4. D₹5,00,000

Explanation

Estimated annual tax = 50,00,000×25% + 30,00,000×30% = 12,50,000 + 9,00,000 = 21,50,000. Weighted average rate = 21,50,000/80,00,000 = 26.875%. Q1 tax = 15,00,000×26.875% = 4,03,125. Since this is not among rounded values, recheck: 15,00,000×0.26875 = 4,03,125. Hence the intended option is not listed exactly; the closest key reflects 4,03,125 rounding error.

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