Skip to content

CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Narmada Industries Ltd estimates its annual tax at a weighted average rate. Pre-tax profits: Q1 Rs 20 lakh, Q2 Rs 30 lakh. Expected annual pre-tax profit is Rs 200 lakh and the estimated annual tax expense is Rs 50 lakh, as per the current estimate. What tax expense should be recognised for the half year ended Q2 under AS 25?

The tax expense is Rs 12.5 lakh. AS 25 applies the estimated average annual effective tax rate, here 50/200 which is 25 percent, to the interim pre-tax profit of Rs 50 lakh for the half year, giving Rs 12.5 lakh.

  1. ARs 12.5 lakhCorrect
  2. BRs 25 lakh
  3. CRs 20 lakh
  4. DRs 50 lakh

Explanation

AS 25 requires income tax expense to be accrued using the estimated average annual effective tax rate applied to interim pre-tax income. Rate = 50/200 = 25%. Half-year profit = 20+30 = 50 lakh; tax = 25% of 50 = Rs 12.5 lakh. Rs 25 lakh wrongly uses 50% of annual tax.

Did you get it right without looking?

One question tells you little. A timed set on AS 25 Interim Financial Reporting shows your real accuracy, how long you take and where you lose marks.

Practise AS 25 Interim Financial ReportingFree diagnostic mock

More AS 25 Interim Financial Reporting questions