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

Ravi Engineering Ltd. started the year with a deferred tax liability of ₹90,000 computed at 30% on cumulative timing differences of ₹3,00,000. During the year, a new tax rate of 25% was enacted, and the year's depreciation timing difference originating is ₹1,00,000. No other differences exist and no earlier differences reversed. What is the closing deferred tax liability and the deferred tax charge to the Statement of Profit and Loss for the year?

Closing deferred tax liability is ₹1,00,000 and the deferred tax charge is ₹10,000. Cumulative timing differences of ₹4,00,000 are remeasured at the newly enacted 25% rate, giving ₹1,00,000. The difference from the opening ₹90,000 is the charge for the year.

  1. AClosing DTL ₹1,00,000; charge ₹10,000Correct
  2. BClosing DTL ₹1,20,000; charge ₹30,000
  3. CClosing DTL ₹1,00,000; charge ₹25,000
  4. DClosing DTL ₹1,25,000; charge ₹35,000

Explanation

Closing cumulative timing difference = 3,00,000 + 1,00,000 = ₹4,00,000. At 25%, closing DTL = ₹1,00,000. Charge = 1,00,000 − 90,000 = ₹10,000, which includes the 5% rate-change gain of ₹15,000 on opening differences (3,00,000 × 5%) offset by ₹25,000 on new differences. Using 30% would give ₹1,20,000, which is wrong.

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