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

Kaveri Textiles Ltd. reports profit before tax of Rs 10,00,000. Included in expenses are Rs 40,000 of penalty paid for violating a statute (not allowed for tax) and Rs 90,000 of provision for doubtful debts disallowed in the current year and allowable in the next year when the debts are written off. Tax rate is 30%. What is the current tax for the year?

Current tax is Rs 3,39,000. Both the penalty and the provision for doubtful debts are disallowed in computing this year's taxable income, so they are added back to profit: 10,00,000 plus 40,000 plus 90,000 equals Rs 11,30,000, and 30% of that is Rs 3,39,000.

  1. ARs 3,00,000
  2. BRs 3,39,000Correct
  3. CRs 3,12,000
  4. DRs 3,27,000

Explanation

Taxable income = 10,00,000 + 40,000 + 90,000 = Rs 11,30,000. Current tax at 30% = Rs 3,39,000. Option C adds only the penalty, option D adds only the provision, and option A ignores both adjustments.

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