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CA Final · Financial Reporting · Ind AS 12 Income Taxes

Sundaram Textiles Ltd bought a machine on 1 April 2024 for ₹10,00,000. In its books it charges straight-line depreciation over 5 years with nil residual value. For tax it claims 25% depreciation on the written down value. The tax rate is 25% and there is no other temporary difference. Which deferred tax balance should be recognised at 31 March 2025?

A deferred tax liability of ₹12,500 arises. The carrying amount is ₹8,00,000 and the tax base is ₹7,50,000, so the taxable temporary difference is ₹50,000. Multiplying by the 25% tax rate gives ₹12,500, because the carrying amount exceeds the tax base.

  1. ADeferred tax liability of ₹12,500Correct
  2. BDeferred tax asset of ₹12,500
  3. CDeferred tax liability of ₹50,000
  4. DDeferred tax liability of ₹62,500

Explanation

Carrying amount = 10,00,000 − 2,00,000 = 8,00,000. Tax base = 10,00,000 − 2,50,000 = 7,50,000. The taxable temporary difference is 50,000, and 25% of that is a DTL of 12,500. A DTA arises only when the carrying amount is below the tax base. ₹62,500 wrongly applies the tax rate to the tax depreciation of ₹2,50,000.

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