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

Sundaram Pharma Ltd. has an opening DTL of ₹90,000 on depreciation. In the current year, book depreciation is ₹5,00,000 and tax depreciation is ₹4,20,000, tax rate 30%. The deferred tax charge or credit for the year is:

A deferred tax credit of ₹24,000 is recognised and the DTL falls to ₹66,000. Book depreciation exceeds tax depreciation by ₹80,000, so the earlier timing difference reverses, and 30% of ₹80,000 is released from the opening liability.

  1. ACredit of ₹24,000, DTL reduces to ₹66,000Correct
  2. BDebit of ₹24,000, DTL increases to ₹1,14,000
  3. CCredit of ₹1,50,000, DTL reduces to nil
  4. DNo entry as the opening DTL already covers it

Explanation

Book depreciation exceeds tax depreciation by ₹80,000, so the earlier timing difference partly reverses. Reversal = 80,000 × 30% = ₹24,000, credited to profit and loss. Closing DTL = 90,000 − 24,000 = ₹66,000. Option 2 treats it as a fresh origination, which has the wrong sign.

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