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

Meera Textiles Ltd. has accounting profit of Rs 8,00,000 for the year. Its only difference between accounting income and taxable income is depreciation: book depreciation is Rs 2,00,000 and tax depreciation is Rs 3,50,000. Tax rate is 30%. There was no opening deferred tax balance. What is the deferred tax to be recognised 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 in future, and 30% of this difference gives the liability to be recognised.

  1. ADeferred tax liability of Rs 45,000Correct
  2. BDeferred tax asset of Rs 45,000
  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 reduces current taxable income and reverses later. Deferred tax liability = 1,50,000 x 30% = Rs 45,000. Rs 1,05,000 wrongly applies the tax rate to the tax depreciation of 3,50,000 instead of the difference.

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