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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Vindhya Motors Ltd (year ending 31 March) has the following in the first six months: Q1 PBT Rs 50 lakh, Q2 PBT Rs 30 lakh. The estimated average annual effective tax rate was 30% at the end of Q1 and is revised to 20% at end of Q2. What is the tax expense for Q2 alone under AS 25?

The Q2 tax expense is Rs 1 lakh. The revised 20 percent rate applied to the cumulative profit of Rs 80 lakh gives Rs 16 lakh, and deducting Rs 15 lakh already charged in Q1 leaves Rs 1 lakh for Q2.

  1. ARs 9 lakh
  2. BRs 1 lakhCorrect
  3. CRs 6 lakh
  4. DRs 16 lakh

Explanation

AS 25 treats a change in estimated annual tax rate as a change in estimate in the interim where it occurs. Half-year tax = 20% x 80 = Rs 16 lakh. Q1 tax = 30% x 50 = Rs 15 lakh. Q2 tax = 16 - 15 = Rs 1 lakh. Rs 6 lakh wrongly applies 20% to Q2 profit only, ignoring the catch-up.

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