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

Meenakshi Textiles Ltd. has accounting profit of Rs 10,00,000 for the year. Its only difference is depreciation: book depreciation Rs 2,00,000 and tax depreciation Rs 3,50,000. Tax rate is 30%. There was no opening deferred tax balance. What deferred tax (AS 22) arises for the year?

A deferred tax liability of Rs 45,000 arises. Tax depreciation exceeds book depreciation by Rs 1,50,000, creating a taxable timing difference that will reverse later, so the difference is multiplied by the 30% tax rate.

  1. ADeferred tax asset of Rs 45,000
  2. BDeferred tax liability of Rs 45,000Correct
  3. CDeferred tax liability of Rs 60,000
  4. DDeferred tax liability of Rs 1,05,000

Explanation

Tax depreciation exceeds book depreciation by Rs 1,50,000, a timing difference that reverses later, so a deferred tax liability arises. DTL = 1,50,000 x 30% = Rs 45,000. Rs 60,000 wrongly uses the book depreciation of Rs 2,00,000 as the difference; Rs 1,05,000 uses the tax depreciation of Rs 3,50,000.

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