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CA Final · Financial Reporting · Ind AS 12 Income Taxes

Narmada Pharma Ltd has deductible temporary differences of ₹8,00,000 and taxable temporary differences of ₹3,00,000. Both relate to the same tax authority and are expected to reverse in the same period. The entity has a history of losses and no convincing evidence of other future taxable profit. The tax rate is 25%. What net deferred tax amount is presented in the balance sheet?

The net deferred tax presented is nil. The deferred tax liability is ₹75,000. A deferred tax asset is recognised only up to ₹75,000, the amount supported by reversing taxable differences. The remaining ₹1,25,000 is unrecognised because future taxable profit is not probable. The recognised asset and liability are then offset.

  1. ANet deferred tax asset of ₹2,00,000
  2. BNet deferred tax liability of ₹75,000
  3. CNet deferred tax asset of ₹1,25,000
  4. DNil, with deferred tax asset of ₹75,000 offset against deferred tax liability of ₹75,000Correct

Explanation

The DTL is 25% × 3,00,000 = 75,000. The DTA can be recognised only to the extent of taxable temporary differences reversing in the same period, so 75,000 is recognised. The balance of 5,00,000 × 25% = 1,25,000 is unrecognised for lack of probable taxable profit. The recognised DTA and the DTL are offset to nil. Recognising the full 2,00,000 ignores the probability test.

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