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

Sundaram Foods Ltd. has opening deferred tax liability of Rs 3,00,000 (tax rate 30%). During the year, timing differences of Rs 4,00,000 originate (creating liability) and timing differences of Rs 2,50,000 reverse (from earlier liability). Tax rate is unchanged. What is the closing deferred tax liability?

Closing deferred tax liability is Rs 3,45,000. Originating differences of Rs 4,00,000 less reversing differences of Rs 2,50,000 leave a net Rs 1,50,000, which adds Rs 45,000 of liability at 30% to the opening Rs 3,00,000.

  1. ARs 3,45,000Correct
  2. BRs 3,75,000
  3. CRs 2,55,000
  4. DRs 4,20,000

Explanation

Net increase in timing differences = 4,00,000 - 2,50,000 = Rs 1,50,000. Increase in DTL = 1,50,000 x 30% = Rs 45,000. Closing DTL = 3,00,000 + 45,000 = Rs 3,45,000. Rs 4,20,000 adds the originating amount without deducting the reversal.

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