CMA Intermediate · Financial Accounting · Accounting for Taxes on Income (AS 22)
Meera Ltd on first adoption of AS 22 finds an accumulated deferred tax asset of Rs 2,00,000 on past timing differences. Prudence is satisfied only for Rs 1,20,000 of it. What credit is made to revenue reserves?
Revenue reserves are credited with Rs 1,20,000, because on transition AS 22 allows deferred tax assets to be recognised with a credit to revenue reserves only to the extent that prudence is satisfied.
- ARs 2,00,000
- BRs 1,20,000Correct
- CRs 80,000
- DNil, as the credit goes to profit and loss
Explanation
Deferred tax assets on transition are recognised with a credit to revenue reserves, subject to prudence. Only Rs 1,20,000 passes the prudence test, so that is the credit. Rs 2,00,000 ignores prudence; Rs 80,000 is the unrecognised part.
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