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

Under AS 22, an enterprise should offset assets and liabilities representing current tax only if it has a legally enforceable right to set off the recognised amounts and, in addition:

Current tax assets and liabilities are offset only when the enterprise has a legally enforceable right to set off the recognised amounts and intends to settle them on a net basis. Both conditions must be met; no auditor certificate or equality of deferred tax balances is required.

  1. Aits auditor has certified the net balance
  2. Bintends to settle the asset and the liability on a net basisCorrect
  3. Cthe amounts relate to the same financial year only
  4. Dthe deferred tax balances are also equal in amount

Explanation

AS 22 requires two conditions for offsetting current tax assets and liabilities: a legally enforceable right to set off the recognised amounts, and an intention to settle on a net basis. Auditor certification, same-year matching and equal deferred tax balances are not conditions in the standard.

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