Skip to content

CMA Final · Corporate Financial Reporting · Income Taxes (Ind AS 12)

Meghdoot Ltd bought machinery for Rs 10,00,000 with a 5-year life, depreciated straight-line to nil residual value in its books. For tax, the machinery is depreciated at 25% on written down value. Tax rate is 25%. At the end of Year 1, what is the deferred tax position under Ind AS 12?

A deferred tax liability of Rs 12,500 arises. The carrying amount is Rs 8,00,000 and the tax base is Rs 7,50,000, so the taxable temporary difference is Rs 50,000. At 25%, the liability is Rs 12,500 because the carrying amount exceeds the tax base.

  1. ADeferred tax liability of Rs 12,500Correct
  2. BDeferred tax asset of Rs 12,500
  3. CDeferred tax liability of Rs 50,000
  4. DDeferred tax liability of Rs 2,50,000

Explanation

Carrying amount = 10,00,000 - 2,00,000 = 8,00,000. Tax base = 10,00,000 - 2,50,000 = 7,50,000. Taxable temporary difference = 50,000; DTL = 25% x 50,000 = Rs 12,500. A deferred tax asset arises only when the tax base exceeds the carrying amount, which is not the case here.

Did you get it right without looking?

One question tells you little. A timed set on Income Taxes (Ind AS 12) shows your real accuracy, how long you take and where you lose marks.

Practise Income Taxes (Ind AS 12)Free diagnostic mock

More Income Taxes (Ind AS 12) questions