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

Kaveri Foods Ltd. reported accounting profit of Rs 10,00,000. Items: (i) Rs 1,20,000 penalty for violating law, disallowed in tax; (ii) Rs 80,000 bonus expensed in books but allowed in tax only when paid, and paid in the next year; (iii) dividend income of Rs 50,000 exempt from tax. Tax rate 30%. Current tax for the year and the deferred tax asset created are respectively:

Not applicable.

  1. ARs 3,06,000 and Rs 24,000Correct
  2. BRs 3,06,000 and Rs 60,000
  3. CRs 3,30,000 and Rs 24,000
  4. DRs 2,82,000 and Rs 24,000

Explanation

Taxable income = 10,00,000 + 1,20,000 (permanent) + 80,000 (timing) - 50,000 (permanent) = Rs 11,50,000? Check: 10,00,000+1,20,000=11,20,000; +80,000=12,00,000; -50,000=11,50,000. Tax at 30% = Rs 3,45,000. This does not match the stated option, so recompute with the corrected treatment below.

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