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

Under AS 22, which of the following items gives rise to a deferred tax asset or deferred tax liability?

Only timing differences create deferred tax assets or liabilities, because AS 22 defines deferred tax as the tax effect of timing differences. Permanent differences, such as expenses never allowed for tax, do not create deferred tax, and current tax payable is a separate item.

  1. AA permanent difference between accounting income and taxable income
  2. BA timing difference between accounting income and taxable incomeCorrect
  3. CAny expense disallowed in full for tax purposes
  4. DCurrent tax payable for the year

Explanation

AS 22 defines deferred tax as the tax effect of timing differences. Permanent differences do not result in deferred tax assets or liabilities, so the option on permanent differences is wrong. A fully disallowed expense is a permanent difference, and current tax payable is not deferred tax.

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