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

Kaveri Industries Ltd. charged book depreciation of Rs 4,00,000 for the year, while tax depreciation allowed was Rs 6,50,000. There was no opening deferred tax balance. The tax rate is 30%. What is the deferred tax for the year?

A deferred tax liability of Rs 75,000 arises. Tax depreciation exceeds book depreciation by Rs 2,50,000, creating a taxable timing difference that reverses later. Multiplying Rs 2,50,000 by the 30% rate gives Rs 75,000, recognised as a liability.

  1. ADeferred tax asset of Rs 75,000
  2. BDeferred tax liability of Rs 1,20,000
  3. CDeferred tax liability of Rs 75,000Correct
  4. DDeferred tax liability of Rs 1,95,000

Explanation

Timing difference = 6,50,000 - 4,00,000 = 2,50,000, since tax depreciation exceeds book depreciation, taxable income is lower now and higher later. DTL = 2,50,000 x 30% = Rs 75,000. Rs 1,20,000 uses only book depreciation as base.

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