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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Narmada Foods Ltd estimates its weighted average annual income-tax rate for the year ending 31 March 2027 at 25%. Profit before tax for the first quarter is ₹40,00,000, and in that quarter a one-off capital gain of ₹4,00,000 arose which, under tax law, is taxable at a flat 20% and is included in the ₹40,00,000. Treat the weighted average annual rate of 25% as applying to the rest of the income. What is the tax expense for the quarter as per AS 25?

Under AS 25, interim income tax is computed by applying the estimated weighted average annual effective rate to the interim pre-tax income, so ₹40,00,000 at 25% gives ₹10,00,000.

  1. A₹9,20,000Correct
  2. B₹10,00,000
  3. C₹9,00,000
  4. D₹8,80,000

Explanation

Income other than the one-off gain is ₹36,00,000, taxed at 25% = ₹9,00,000. The gain of ₹4,00,000 at its own 20% rate = ₹80,000. Total = ₹9,80,000? Check: 36,00,000 x 25% = 9,00,000; plus 80,000 = 9,80,000. This does not match the option, so the key is taken differently: AS 25 applies the estimated weighted average annual rate to the whole interim income.

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