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

Meghdoot Traders Ltd. has an accounting profit of Rs 8,00,000 for the year. Depreciation as per books is Rs 1,50,000 and as per the Income-tax rules is Rs 2,50,000. There are no other differences. The tax rate is 30%. What is the current tax for the year?

Current tax is Rs 2,10,000. Taxable income equals accounting profit plus book depreciation less tax depreciation, which is 8,00,000 plus 1,50,000 minus 2,50,000, giving 7,00,000. Applying the 30% rate to this taxable income gives the current tax payable for the year.

  1. ARs 2,10,000Correct
  2. BRs 2,40,000
  3. CRs 2,70,000
  4. DRs 1,95,000

Explanation

Taxable income = 8,00,000 + 1,50,000 - 2,50,000 = 7,00,000. Current tax = 30% of 7,00,000 = Rs 2,10,000. Rs 2,40,000 is wrong because it ignores the depreciation difference and taxes the accounting profit.

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