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

Vihaan Ltd's profit before tax for the year is Rs 8,00,000. Accounting depreciation is Rs 2,00,000 and tax depreciation is Rs 3,00,000. There are no other differences and no opening deferred tax balances. The tax rate is 25%. What is the total tax expense (current tax plus deferred tax) recognised in profit or loss?

Total tax expense is Rs 2,00,000. Current tax on taxable profit of Rs 7,00,000 is Rs 1,75,000, and the excess tax depreciation of Rs 1,00,000 creates a deferred tax liability of Rs 25,000. Together they equal 25% of the accounting profit of Rs 8,00,000.

  1. ARs 1,75,000
  2. BRs 2,00,000Correct
  3. CRs 2,25,000
  4. DRs 1,50,000

Explanation

Taxable profit = 8,00,000 + 2,00,000 - 3,00,000 = 7,00,000, so current tax = 1,75,000. Tax depreciation exceeds accounting depreciation by 1,00,000, creating a taxable temporary difference and a deferred tax liability of 25,000. Total tax expense = 1,75,000 + 25,000 = 2,00,000, which equals 25% of accounting profit. Rs 1,75,000 ignores deferred tax.

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