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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Narmada Ltd. (year ending 31 March) estimates its annual income at ₹40,00,000 before tax, and expects the weighted average annual tax rate to be 30%. The first-quarter pre-tax profit is ₹6,00,000 and the second-quarter pre-tax profit is ₹10,00,000. What is the income tax expense to be recognised for the half year ended 30 September under AS 25?

The tax expense is ₹4,80,000. AS 25 requires applying the estimated average annual effective tax rate of 30% to the pre-tax profit of the interim period, which is ₹16,00,000 for the half year (6,00,000 plus 10,00,000), giving 16,00,000 × 30%.

  1. A₹4,80,000Correct
  2. B₹12,00,000
  3. C₹1,80,000
  4. D₹3,00,000

Explanation

Interim tax is computed using the estimated weighted average annual effective tax rate applied to interim pre-tax income. Half-year pre-tax profit = 6,00,000 + 10,00,000 = 16,00,000. Tax = 16,00,000 × 30% = ₹4,80,000. Option C is the tax for the first quarter only (6,00,000 × 30%), and B is the full-year tax.

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