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

Under AS 22, how should deferred tax assets and liabilities be measured with regard to the time value of money?

Deferred tax assets and liabilities are not discounted to present value under AS 22. They are carried at the undiscounted tax effect of timing differences, whatever the reversal period or the enterprise's borrowing cost, and whether the item is an asset or a liability.

  1. AThey should be discounted to present value using the enterprise's borrowing rate
  2. BThey should be discounted only if the reversal is expected after five years
  3. CThey should not be discounted to their present valueCorrect
  4. DThey should be discounted only for deferred tax liabilities, not for assets

Explanation

AS 22 states that deferred tax assets and liabilities should not be discounted to their present value. This applies to both assets and liabilities and does not depend on when reversal is expected, so each discounting option is wrong.

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