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CMA Intermediate · Financial Accounting · Accounting for Taxes on Income (AS 22)

Mehta Auto Ltd has these deferred tax balances at year end, all under the same tax laws with a legal right to set off current tax: DTL on depreciation ₹12,00,000; DTL on unamortised expenses ₹2,00,000; DTA on provision for doubtful debts ₹3,50,000; DTA on 43B-type disallowed expenses ₹4,50,000. Which statement is correct?

The balance sheet shows a net deferred tax liability of ₹6,00,000, being ₹14,00,000 of liabilities less ₹8,00,000 of assets, since offset conditions are met. AS 22 additionally requires the break-up of the assets and liabilities into major components to be disclosed in the notes to accounts.

  1. ABalance sheet shows net DTL ₹6,00,000, and component-wise break-up (₹14,00,000 DTL and ₹8,00,000 DTA) is disclosed in notesCorrect
  2. BBalance sheet shows net DTL ₹6,00,000 and no break-up is needed
  3. CBalance sheet shows DTL ₹14,00,000 and DTA ₹8,00,000 separately, with no offset
  4. DBalance sheet shows net DTL ₹22,00,000

Explanation

Total DTL = 12,00,000 + 2,00,000 = 14,00,000; total DTA = 3,50,000 + 4,50,000 = 8,00,000. Offset conditions are met, so the net DTL is 6,00,000. AS 22 also requires the break-up into major components of the balances in the notes. Omitting the break-up or the offset is wrong.

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