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CMA Intermediate · Financial Accounting · Accounting for Taxes on Income (AS 22)

Sundaram Textiles Ltd. pays a tax on the distribution of dividends to its shareholders. Regarding this tax, AS 22 states that:

AS 22 does not specify when or how an enterprise should account for taxes payable on distribution of dividends and other distributions. Hence it prescribes neither current tax nor deferred tax treatment for such taxes, as they are outside the Standard's scope.

  1. AIt must be recognised as deferred tax in the year of declaration
  2. BIt must be charged to the statement of profit and loss as current tax of the year
  3. CIt does not specify when, or how, an enterprise should account for taxes payable on distribution of dividends and other distributionsCorrect
  4. DIt must be set off against the tax on accounting income

Explanation

The scope of AS 22 expressly states that it does not specify when, or how, an enterprise should account for taxes payable on dividends and other distributions. So options prescribing a definite treatment, such as deferred tax or current tax, contradict the Standard.

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