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

Under AS 22, when will an enterprise normally have a legally enforceable right to set off an asset and liability representing current tax?

An enterprise will normally have a legally enforceable right to set off current tax asset and liability when they relate to income taxes under the same governing taxation laws and those laws permit it to make or receive a single net payment. Size of balances or deferred tax position does not matter.

  1. AWhen the taxes are levied by different governing taxation laws but fall due in the same month
  2. BWhen the tax liability is larger than the tax asset
  3. CWhen the taxes relate to income taxes levied under the same governing taxation laws and the laws permit a single net payment or receiptCorrect
  4. DWhen the enterprise has no deferred tax balances

Explanation

AS 22 states the enterprise normally has the legal right when the taxes are levied under the same governing taxation laws and those laws permit the enterprise to make or receive a single net payment. Different laws, relative size or absence of deferred tax are irrelevant.

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