Skip to content

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

Meenakshi Textiles Ltd. has a tax rate of 30% (no surcharge or cess for simplicity). In the year ended 31 March 2026, accounting profit before tax was Rs 8,00,000. Under the Income-tax law, the company claimed depreciation of Rs 5,00,000 against book depreciation of Rs 3,00,000 on the same machinery. No other differences exist. What is the deferred tax liability created for the year, and its nature of difference?

The deferred tax liability is Rs 60,000, arising from a timing difference. Tax depreciation exceeds book depreciation by Rs 2,00,000, this difference reverses in future years, and applying the 30% tax rate gives Rs 60,000. Permanent differences do not create deferred tax.

  1. ARs 60,000, arising from a timing differenceCorrect
  2. BRs 60,000, arising from a permanent difference
  3. CRs 1,20,000, arising from a timing difference
  4. DRs 2,40,000, arising from a timing difference

Explanation

Tax depreciation exceeds book depreciation by Rs 2,00,000, a timing difference that reverses in later years. Deferred tax liability = 2,00,000 x 30% = Rs 60,000. Option 3 wrongly applies the tax rate to the tax depreciation of Rs 5,00,000... actually it uses 40% of the difference; a permanent difference never creates deferred tax.

Did you get it right without looking?

One question tells you little. A timed set on AS 22 Accounting for Taxes on Income shows your real accuracy, how long you take and where you lose marks.

Practise AS 22 Accounting for Taxes on IncomeFree diagnostic mock

More AS 22 Accounting for Taxes on Income questions