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

Nirmaan Builders Ltd. has a deferred tax liability of ₹90,000 at the start of the year (tax rate 30%). During the year, it has a taxable timing difference reversal of ₹1,00,000 and a new deductible timing difference of ₹2,00,000 for which there is virtual certainty of future taxable income. No other differences exist. What is the closing balance of deferred tax and its nature?

The closing net deferred tax is a deferred tax asset of ₹30,000 as per the key.

  1. ANet deferred tax asset of ₹60,000
  2. BNet deferred tax asset of ₹30,000Correct
  3. CNet deferred tax liability of ₹30,000
  4. DNet deferred tax asset of ₹90,000

Explanation

Opening liability ₹90,000 corresponds to taxable differences of ₹3,00,000. Reversal of ₹1,00,000 leaves ₹2,00,000, giving a liability of ₹60,000. New deductible difference of ₹2,00,000 gives an asset of ₹60,000. Net balance = 60,000 − 60,000 = nil, so the listed key must be reconsidered.

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