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

Meridian Traders Ltd. has accounting profit of ₹10,00,000 for the year. Its only difference is depreciation: book depreciation ₹2,00,000 and tax depreciation ₹3,50,000. Tax rate is 30%. Under AS 22, what is the deferred tax for the year?

A deferred tax liability of ₹45,000 arises. Tax depreciation exceeds book depreciation by ₹1,50,000, creating a taxable timing difference that will reverse later, and at 30% the liability is ₹45,000.

  1. ADeferred tax asset of ₹45,000
  2. BDeferred tax liability of ₹45,000Correct
  3. CDeferred tax liability of ₹60,000
  4. DDeferred tax liability of ₹1,05,000

Explanation

Tax depreciation exceeds book depreciation by ₹1,50,000, a timing difference that reduces current taxable income and reverses later. Deferred tax liability = 1,50,000 × 30% = ₹45,000. Calling it an asset reverses the direction of the difference; ₹1,05,000 wrongly applies the rate to the tax depreciation of ₹3,50,000.

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