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

Kaveri Industries Ltd. charged depreciation of ₹6,00,000 in its books for the year, while depreciation allowed under the Income-tax Act was ₹9,00,000. Book profit before tax was ₹20,00,000. There is no other difference. Tax rate is 30%. The opening deferred tax liability on depreciation was ₹1,50,000. What is the closing balance of deferred tax liability after the current year's adjustment?

The closing deferred tax liability is ₹2,40,000. Tax depreciation exceeds book depreciation by ₹3,00,000, creating a further liability of ₹90,000 at 30%, which is added to the opening balance of ₹1,50,000.

  1. A₹60,000
  2. B₹2,40,000Correct
  3. C₹90,000
  4. D₹1,50,000

Explanation

Timing difference originating this year = 9,00,000 - 6,00,000 = ₹3,00,000. Deferred tax liability created = 3,00,000 x 30% = ₹90,000. Closing DTL = 1,50,000 + 90,000 = ₹2,40,000. Taking only the current year charge of ₹90,000 ignores the opening balance.

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