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CMA Final · Corporate Financial Reporting · Income Taxes (Ind AS 12)

Rudra Ltd holds an equity investment classified at fair value through OCI. Cost was Rs 5,00,000 and year-end fair value is Rs 7,00,000. The gain is taxed only on sale, at 20% (capital gains rate). Which treatment is correct under Ind AS 12?

A deferred tax liability of Rs 40,000 is recognised and charged to other comprehensive income. The Rs 2,00,000 fair value gain creates a taxable temporary difference taxed at 20%, and tax follows the item to which it relates, so it goes to OCI, not profit or loss.

  1. ARecognise deferred tax liability of Rs 40,000 charged to OCICorrect
  2. BRecognise deferred tax liability of Rs 40,000 charged to profit or loss
  3. CRecognise no deferred tax until the investment is sold
  4. DRecognise deferred tax asset of Rs 40,000 in OCI

Explanation

Taxable temporary difference is Rs 2,00,000 (7,00,000 - 5,00,000 tax base), giving DTL of Rs 40,000 at 20%. Because the underlying gain was recognised outside profit or loss in OCI, the related tax is also recognised in OCI. Charging to profit or loss would mismatch the item and its tax.

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