INTER CA
AS 22 – Accounting for Taxes on Income
PRESENTATION OF TAX ASSETS & LIABILITIES:
→ Current tax assets & liabilities are to be netted off for presentation purpose if:
I. The entity has legally enforceable right to do so &
II. The entity wishes to settle off on net basis &
III. Both should relate to same financial year.
Current Tax Assets Set off Current Tax Liabilities
eg. Advance Tax/TDS eg. Provision for tax
Of C.Y. Of C.Y.
→ DTA & DTL can be netted off provided:
I. The entity has legally enforceable right to do so &
II. They belong to same head of income. (eg. DTA because of PGBP & DTL
because of capital gain, can not be set off against each other)
Question 8
Balance Sheet (Extract) Note (` in Lakhs)
1) Liabilities
a) DTL 1 80
b) Provision for Tax 2 25
2) Assets
a) Advance Tax 3 70
Notes to Accounts
1) DTL (Net)
DTL 100
DTA (20)
80
2) Provision for Tax
2005-06 - Provision for Tax 200
:1:
INTER CA
- Advance Tax (175)
25
3) Advance Tax
2006 - 07 - Adv Tax 350
- Prov for Tax (300) 50
2007 - 08 - Adv Tax 270
- Prov for Tax (250) 20
70
Recognition of Deferred Tax Assets
(In line with principle of prudence)
In relation to other timing In relation to carry forward of Business
difference losses & Unabsorbed Depreciation
Recognise DTA only if it is Recognise DTA only if it is virtually certain
reasonably certain that as supported by convincing evidence that
entity will have sufficient there will be sufficient Taxable income in
profit in future year/ years future against which DTA will be utilised.
against which DTA will be
utilised. Virtual certainly
eg. Company is having Land & Building,
Reasonable Certainty Book value = 5L, Market value = 50L &
eg. Company having goods company wants to sell it.
order book, Good past (+) Convincing evidence
record, past profits, etc. eg. co enter into binding sale Agreement /
BOD passed resolution to sell L & B
:2:
INTER CA
Transitional Provisions
1st entity was preparing Now entity adopts AS-22 for the very 1st time.
BOA without AS-22 Then what about Timing Difference which
arised or originated before adoption of AS-22?
or
What if AS-22 came for the very first time?
Then TD originated before that, How to Adjust
that?
→ So we have to consider those TD which originated before adoption of AS-22 &
getting reversed after adoption of AS-22, For this we have to do Accounting.
→ Recognise DTA/DTL through opening balance of Reserve i.e. General Reserve &
not though P&L A/c.
Question 1
i) Depreciation - A/cs = 800,0000 General Res.
P &L 180,000
Depreciation - Tax = 1400,000
To DTL 180,000
TD = 600,000
Tax Rate 30%
DTL 180,000
ii) Unamortised prelim DTA 3000
Exp. as per IT = 10,000 To P &L 3000
General Res.
(Timing Diff)
Tax Rate 30%
DTA 3000
:3:
INTER CA
Special Areas
1. Sec. 10A, 10B & 80IA, 80IB
Exemption Deduction
Related to Tax Holiday
→ Entity enjoys Tax holiday on account of exemption or deduction
→ As a result of this, entities are not supposed to pay taxes during the Tax Holiday
period.
→ Now the Query arises, If entity is enjoying Tax Holiday then how to account for
TD arising.
→ As per the guidance given, the entity which is under Tax Holiday period should
not recognise any DT for TD which arises in THP & reverse in THP.
→ DT are to be recognised only for those TD which arise in THP & reverse in No
THP.
2. Sec. 115JB (Minimum Alternate Tax) MAT
115JC (Alternate minimum Tax) AMT
→ As per IT Act entities are required to pay Tax which is higher of the following:
a) Taxable Income × Normal Tax rate = xxx
b) Book profit as per MAT × MAT rate = xxx
→ If entity pays Tax based on MAT Provisions then it will receive MAT credit
Eg. Normal Tax = 10,000
MAT Tax = 18,000
Payable to Govt = i.e. 18,000
MAT Credit = 8000 (Excess of MAT over Normal Tax)
MAT credit will be adjusted in future against Normal Tax if Normal Tax > MAT
Tax in Future.
→ DT will be always measured at Normal rate of Tax irrespective of the Fact
whether the entities is being Taxed or will be Taxed based on MAT rates.
:4:
