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CMA Final · Corporate Financial Reporting · Income Taxes (Ind AS 12)

Vihaan Ltd's accounting profit for the year is Rs 20,00,000. Items: depreciation in books Rs 6,00,000 versus tax depreciation Rs 9,00,000; provision for warranty Rs 2,00,000 created this year (deductible when paid; none paid yet); penalty paid Rs 50,000, not deductible; opening deferred tax balance nil. Tax rate 25%. What is total tax expense (current plus deferred) for the year?

Total tax expense is Rs 5,12,500. Current tax on taxable income of Rs 19,50,000 is Rs 4,87,500, and net deferred tax expense is Rs 25,000 (liability of Rs 75,000 less asset of Rs 50,000). Equivalently it is 25% of profit plus the non-deductible penalty.

  1. ARs 5,12,500Correct
  2. BRs 5,00,000
  3. CRs 4,37,500
  4. DRs 5,62,500

Explanation

Taxable income = 20,00,000 - 3,00,000 (excess tax depreciation) + 2,00,000 (warranty) + 50,000 (penalty) = 19,50,000; current tax = Rs 4,87,500. DTL on depreciation = 3,00,000 x 25% = 75,000; DTA on warranty = 50,000; net deferred tax expense = 25,000. Total = 5,12,500. Check: 25% of (20,00,000 + 50,000 permanent) = 5,12,500. Rs 5,00,000 wrongly ignores the permanent penalty.

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