CMA Final · Corporate Financial Reporting · Recent Developments in Financial Reporting
Mehta Retail Ltd, taxed at 25%, recognised a right-of-use asset and a lease liability of Rs 100 lakh each at lease commencement. Tax deductions are allowed on lease payments when paid. At the year-end the ROU asset has a carrying amount of Rs 80 lakh and the lease liability is Rs 85 lakh. Applying Ind AS 12 as amended for leases, what is the net deferred tax position recognised at the year-end?
A net deferred tax asset of Rs 1.25 lakh is recognised. The deferred tax asset on the Rs 85 lakh lease liability is Rs 21.25 lakh and the deferred tax liability on the Rs 80 lakh ROU asset is Rs 20 lakh. Both are recognised separately because the initial recognition exemption does not apply to leases.
- ANet deferred tax asset of Rs 1.25 lakhCorrect
- BDeferred tax asset of Rs 21.25 lakh only
- CNil, as the initial recognition exemption applies
- DNet deferred tax liability of Rs 1.25 lakh
Explanation
The amendment removes the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences, such as leases. The deductible difference on the liability is Rs 85 lakh, so the DTA is 25% x 85 = Rs 21.25 lakh. The taxable difference on the ROU asset is Rs 80 lakh, so the DTL is 25% x 80 = Rs 20 lakh. The net DTA is Rs 1.25 lakh. Nil is wrong because the exemption does not apply.
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