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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Kaveri Motors Ltd estimates its annual income tax expense at Rs 36,00,000 on expected annual pre-tax profit of Rs 1,20,00,000. Pre-tax profit for the first quarter is Rs 20,00,000 and for the half year ended 30 September is Rs 50,00,000. Under AS 25, what is the income tax expense to be recognised for the second quarter (July-September), assuming the estimate of the annual effective rate is unchanged?

The second-quarter tax expense is Rs 9,00,000. AS 25 requires applying the estimated average annual effective tax rate, here 30 percent (36 lakh on 120 lakh), to interim pre-tax profit. Second-quarter profit is 50 lakh minus 20 lakh, which is 30 lakh, and 30 percent of that is 9 lakh.

  1. ARs 9,00,000Correct
  2. BRs 6,00,000
  3. CRs 15,00,000
  4. DRs 10,80,000

Explanation

The estimated average annual effective rate = 36,00,000 / 1,20,00,000 = 30%. Q2 pre-tax profit = 50,00,000 - 20,00,000 = Rs 30,00,000. Tax for Q2 = 30% x 30,00,000 = Rs 9,00,000. Rs 15,00,000 wrongly uses the half-year profit at 30%.

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