3. A reconciliation of the income tax provision to the amount
computed by applying the statutory income tax rate to the
income before income taxes is summarized as follows
4. INTRODUCTION
• This IndAS deals with treatment of Income tax in financial
statement.
• Indian Accounting Standard (Ind AS) 12 “income Taxes” have been
replaced in place of Accounting Standard -22 “Accounting for Taxes
on Income”
• Income taxes as per this standard include both domestic and foreign
taxes, which are based on taxable profits
• Income taxes also include taxes, such as withholding taxes, which are
payable by a subsidiary, associate or joint venture on distributions to
the reporting entity
• The objective of this standard is to prescribe the accounting
treatment for income taxes.
• Tax Expense = Current Tax + Deferred Tax
• Deferred tax = Tax on Temporary difference
5. Definations
• Accounting profit is profit or loss for a period before
deducting tax expense
• Taxable profit (tax loss) is the profit (loss) for a
period, determined in accordance with the rules
established by the taxation authorities, upon which
• Tax expense (tax income) is the aggregate amount
included in the determination of profit or loss for
the period in respect of current tax and deferred tax.
• Current tax is the amount of income taxes payable
(recoverable) in respect of the taxable profit (tax
loss) for a period.
6. • Defered Tax – amount of income tax payable
in future(recoverable) In future periods as a
results of past transaction and event
• Deferred tax liabilities -are the amounts of
income taxes payable in future periods in
respect of taxable temporary differences.
• Deferred tax assets -are the amounts of
income taxes recoverable in future periods in
respect of:
(a) deductible temporary differences
(b) the carry forward of unused tax losses; and
(c) the carry forward of unused tax credits.
7. DTA/DTL OF reliance ltd
As at 31st
March, 2019
As at 31st
March, 2018
DEFERRED TAX
COMPONENT OF DEFERRED TAX
Deferred Tax Assets (Net) 4776 5075
Deferred Tax Liabilities (Net) 49923 29618
Net Deferred Tax Assets /
(Liabilities)
(45147) (24543)
8.
9. • Deferred tax is created due to the difference in the
timing of book profit and the taxable profit.
• There are some items which are deducted from the
taxable profits and others are not. Timing differences
are of two types:
1. Permanent Difference: The differences which cannot
be reversed in the subsequent periods and may take
longer time are permanent differences.
2. Temporary Difference: The difference which can be
reversed in the subsequent period and is generally
created because the items are charged and taxed in
different periods of time is the temporary difference.
10. Example
• very common example of this is depreciation.
For companies, depreciation rates to be
considered in books of accounts are defined in
companies act but while calculating Income
Tax the depreciation will be allowed only as
per rates given in Income Tax Act.
• Therefore, there is difference between
income as per books and taxable income as
per IT Act.
13. Year Depreciation @ 20% Depreciation @ 15%
1 20,000 15,000
2 16,000 12,750
3 12,800 10,837.5
4 1,0240 9,211.88
5 8,192 7,830.09
6 6,553.6 6,655.58
7 5,242.88 5,657.24
8 4,194.3 4,808.66
9 3,355.44 4,087.36
10 2,684.36 3,474.25
For example – In case of depreciation, if depreciation rate is 20% as
per books
and 15% as per income tax then depreciation on Rs. 1,00,000 is
allowed in following manner.
15. tax base
• It is amount of an asset or liability attributed
to asset or liability for tax purpose
• Example: (a) Current liabilities include accrued
expenses with a carrying amount of Rs 100.
The related expense has already been
deducted for tax purposes. The tax base of the
accrued Expenses is Rs 100
16. Temporary differences
• Temporary differences are differences between the carrying amount of an
asset or liability in the balance sheet and its tax base.
• Temporary differences may be either:
• (a) Taxable temporary differences:- which are temporary differences that
will result in taxable amounts in determining taxable profit (tax loss) of
future periods when the carrying amount of the asset or liability is
recovered or settled;
• Temporary Difference = Carrying Amount – Tax Base
Example --An asset which cost Rs 300 has a carrying amount of Rs 200.
Cumulative depreciation for tax purposes is Rs 180
and the tax rate is 25%.
Answer -Tax Base of Assets = 300-180 = 120
Book Value of Assets = 200
Temporary Difference =200-120 = 80
Deferred tax liability = 80*25% = 20
17. • (b) Deductible temporary differences :- which are
temporary differences that will result in amounts that are deductible in
determining taxable profit (tax loss) of future periods when the carrying
amount of the asset or liability is recovered or settled.
Example An entity recognises a liability of Rs 100 for gratuity and
leave encashment expenses by creating a provision for gratuity and
leave encashment.
• For tax purposes, any amount with regard to gratuity and leave
encashment will not be deductible until the entity pays the same. The
tax rate is 25%.
• Answer Tax Base of Liability = Nil
• Book Value= 100
• Deferred Tax Assets = 100*25% = 25
20. EXAMPLES
• Interest receivable has a carrying amount of Rs 100. The related
interest revenue will be taxed on a cash basis. The tax base of the
interest receivable is nil.
• Trade receivables have a carrying amount of Rs 100. The related
revenue has already been included in taxable profit (tax loss). The
tax base of the trade receivables is Rs 100.
• A machine cost Rs 100. For tax purposes, depreciation of Rs 30 has
already been deducted in the current and prior periods and the
remaining cost will be deductible in future periods as depreciation
• Revenue generated by using the machine is taxable, any gain on
disposal of the machine will be taxable and any loss on disposal will
be deductible for tax purposes. The tax base of the machine is Rs
70.
21. 3.Recognition of current tax assets
and current tax liabilities
• Taxes to the extent unpaid for current and
prior periods will be recognised as a liability.
• If the amount already paid for current and
prior periods exceeds the actual amount due,
then it will be recognised as an asset.
• The tax expense (income) related to profit or loss
from ordinary activities shall be presented as part of
profit
22. 6.Measurement of current and Tax
assets/liabilities
• Current tax assets will be measured as the amount
expected to be recovered to the tax authorities
• If amount already paid exceeds amount due, then
recognise the excess as an asset.
• Current tax liability will be measured as the amount
expected to be paid to the tax authorities at the tax
rate enacted by the end of the reporting period.
• Unpaid taxes (current) related to current or prior
periods shall be recognised as a liability.
23. 6.Measurement of deferred tax
assets/liabilities
• Deferred tax assets - The amounts of income taxes
recoverable in future periods in respect of deductible
temporary differences
• Deferred tax liability -The amounts of income taxes
payable in future periods in respect of taxable temporary
differences
• DTL/DTA = Temporary Difference X Tax Rate
24. Recognition
Current tax for current and prior periods shall, to
the extent unpaid, be recognised as a liability.
• If the amount already paid in respect of current
and prior periods exceeds the amount due for
those periods, the excess shall be recognised as
an asset.
• The benefit relating to a tax loss that can be
carried back to recover current tax of a previous
period shall be recognised as an asset.
26. DISCLOSURE
• Major component of tax expenses (income) to be separately disclosed such as :
1. Current tax expense
2. Prior period adjustment
3. Deferred expense/income
• Aggregate current and deferred tax relating to items charged or credited directly to
equity
• Income tax relating to each component of other comprehensive income
• Reconciliation
a numerical reconciliation between tax expense (income) and the product of accounting
profit multiplied by the applicable tax rate, disclosing also the basis on which the applicable
tax rate is computed; or
• An explanation of changes in the applicable tax rate compared to the previous
accounting period;
• Amount and expiry date, if any of deductible temporary differences, unused losses
and credits for which no DTA recognised
29. EXAMPLE
• An asset which cost Rs. 150 has a carrying amount of Rs. 100.
• Cumulative depreciation for tax purposes is Rs. 90 and the tax
rate is 25%.
• The tax base of the asset is Rs. 60 (cost of Rs. 150 less
cumulative tax depreciation of Rs. 90).
• To recover the carrying amount of Rs. 100, the entity must earn
taxable income of Rs. 100, but will only be able to deduct tax
depreciation of Rs. 60.
• Consequently, the entity will pay income taxes of Rs.10 (Rs. 40
at 25%) when it recovers the carrying amount of the asset.
• The difference between the carrying amount of Rs. 100 and the
tax base of Rs. 60 is a taxable temporary difference of Rs. 40.
• Therefore, the entity recognises a deferred tax liability of Rs. 10
(Rs. 40 at 25%) representing the income taxes that it will pay
when it recovers the carrying amount of the asset.
30. .
QUESTION
Building Purchased on 01/04/2013 for - 5 Lacs.
Depreciation rate: As per companies act - 10%,
As per Income Tax - 15%.
Expected Tax Rate: Year 1 – 30%, Year 2 – 33%.
Calculate DTA/DTL for year 1&2.
• Solution: Year 1:
Building Book Value 450,000 (5,00,000-10%)
Tax Base -425,000 (5,00,000-15%)
Temprorary difference = 25000
DTL =(25,000 X 30%) – 0 = 7,500 (T/f to P&L)
Year 2:
Building Book Value 405,000 (450000-10%)
Tax Base -361,250(425000-15%)
Temprorary difference = 43750
DTL=(43,750 X 33%) – 7,500 = 6,938 (T/f to P&L)
31. .
CALCULATION OF DTA/DTL:-
1. Identify Carrying Amount of Assets/Liabilities.
2. Identify Tax Base of such Assets/Liabilities.
3. Calculate Temporary Difference of such
Assets/Liabilities.
4. Book DTA/DTL based ON EXPECTED RATE OF TAX
• Temporary Difference = Temporary difference are
difference between Accounting Income and Taxable
Income. (Carrying Amount – Tax Base.)
• Carrying Amount: Book Value of Assets/Liability in
Balance Sheet.
• Tax Base: Value of assets/liabilities as per Income Tax.
32. ACCOUNTING
DTA = Deductible Temporary Difference, Due to current year, future
deduction.
(e.g. – As per companies act Depreciation is 20% but as per IT act it is
15 %, so the book value of such asset will be less than tax base.)
Book Value XXX
(-) Tax Base XXX
Temporary Difference (XXX) {Negative}
Book DTA
DTL = Taxable Temporary Difference, Due to current year, future income will
increase.
(e.g. - As per companies act Depreciation is 15% but as per IT act it is
20 %, so the book value of such asset will be more than tax base.)
Book Value XXX
(-) Tax Base XXX
Temporary Difference XXX {Positive}
Book DTL
33. • Example A An item of property, plant and equipment
has a carrying amount of Rs. 100 and a tax base of
Rs. 60.
• A tax rate of 20% would apply if the item were sold
and a tax rate of 30% would apply to other income.
• The entity recognises a deferred tax liability of Rs. 8
(Rs. 40 at 20%) if it expects to sell the item without
further use
• and a deferred tax liability of Rs. 12 (Rs. 40 at 30%) if
it expects to retain the item and recover its carrying
amount through use.
34. • An item of property, plant and equipment with a cost of Rs.
100 and a carrying amount of Rs. 80 is revalued to Rs. 150.
• No equivalent adjustment is made for tax purposes.
Cumulative depreciation for tax purposes is Rs. 30 and the
tax rate is 30%.
• If the item is sold for more than cost, the cumulative tax
depreciation of Rs. 30 will be included in taxable income
but sale proceeds in excess of cost will not be taxable.
• The tax base of the item is Rs. 70 and
• there is a taxable temporary difference of Rs. 80.
• If the entity expects to recover the carrying amount by
using the item, it must generate taxable income of Rs. 150,
but will only be able to deduct depreciation of Rs. 70.
35. .
On this basis, there is a deferred tax liability of Rs. 24 (Rs. 80 at 30
%). If the entity expects to recover the carrying amount by selling
the item immediately for proceeds of Rs. 150, the deferred tax
liability is computed as follows:
36. 1. IND AS 12 Deals with
a) PPE
b) Impairment Loss
c) EPS
d) Accounting for tax
2. IndAS 12 deals with
a) Depreciation method
b) treatment of Income tax in financial statement
c) Earning on shares
d) None of the above
37. 3. Ind AS 12 “income Taxes” have been replaced in place of
a) Accounting Standard -22 “Accounting for Taxes on Income”
b) Accounting Standard -1 “Disclosure of Accounting Policies”
c) Accounting standard -2 “Valuation of Inventories”
d) None Of the above
4. Tax Expense =
a) Current Tax + Deferred Tax
b) Tax on Temporary difference
c) Current Tax x Deferred Tax
d) None of the above
38. 5. Deferred tax =
a) Current Tax + Deferred Tax
b) Tax on Temporary difference
c) Current Tax x Deferred Tax
d) None of the above
6…….. is profit or loss for a period before deducting
tax expense
a) Tax Expense
b) Current Tax
c) Accounting profit
d) Deferred Tax
39. 7…………..is the profit (loss) for a period, determined in
accordance with the rules established by the taxation
authorities.
a) Taxable profit (tax loss)
b) Tax expense (tax income)
c) Accounting profit
d) Deferred Tax
8. ………….is the aggregate amount included in the determination
of profit or loss for the period in respect of current tax and
deferred tax
a) Taxable profit (tax loss)
b) Tax expense (tax income)
c) Accounting profit
d) Deferred Tax
40. 9. …………….Amount of income tax payable in
future(recoverable) In future periods as a results of past
transaction and event .
a) Taxable profit (tax loss)
b) Tax expense (tax income)
c) Accounting profit
d) Deferred Tax
10. Types of deferred taxes are
a) Deferred tax assets
b) Deferred tax liability
c) Tax expense
d) Both a and b
41. 11. …………. are the amounts of income taxes payable in
future periods in respect of taxable temporary differences
a) Deferred tax assets
b) Deferred tax liability
c) Tax expense
d) Both a and b
12. ……………are the amounts of income taxes recoverable
in future periods
a) Deferred tax assets
b) Deferred tax liability
c) Tax expense
d) Both a and b
42. 13. Deferred tax assets includes
a) deductible temporary differences
b) the carry forward of unused tax losses; and
c) the carry forward of unused tax credits.
d) All of the above
14. …………. is created due to the difference in the
timing of book profit and the taxable profit
a) Taxable profit (tax loss)
b) Tax expense (tax income)
c) Accounting profit
d) Deferred Tax
43. 15. Timing differences are of two types:
a) Permanent Difference:
b) Temporary Difference:
c) Both A and b
d) None of the above
16. …………………The differences which cannot be reversed in
the subsequent periods
a) Permanent Difference:
b) Temporary Difference:
c) Both A and b
d) None of the above
44. 17. The difference which can be reversed in the
subsequent period …………
a) Permanent Difference:
b) Temporary Difference:
c) Both A and b
d) None of the above
18. Temporary Difference =
a) Carrying Amount – Tax Base
b) Carrying Amount + Tax Base
c) Current Tax - Deferred Tax
d) None of the above
45. 19. DTL/DTA =
a) Current Tax - Deferred Tax
b) Temporary Difference X Tax Rate
c) Carrying Amount – Tax Base
d) None of the above
20. Disclosures as per ind as 12 are:
a) Current tax expense
b) Prior period adjustment
c) Deferred expense/income
d) All of the above
46. 21. Steps for CALCULATION OF DTA/DTL:-
I. Identify Carrying Amount of Assets/Liabilities.
II. Calculate Temporary Difference of such
Assets/Liabilities.
III. Identify Tax Base of such Assets/Liabilities
IV. Book DTA/DTL based ON EXPECTED RATE OF
TAX
OPTIONS
a) I,III,II,IV
b) I,III,IV,II
c) I,IV,II,III
d) NONE OF THE ABOVE
47. 22. As per companies act(Business) Depreciation is
20% but as per Income Tax (IT) act it is 15 %, so the
book value of such asset .difference create
a) Deferred tax assets
b) Deferred tax liability
23.As per companies act Depreciation is 15% but as
per IT act it is 20 %, so the book value of such asset
. difference create
a) Deferred tax assets
b) Deferred tax liability
48. 24.Book Value (-) Tax Base = Temporary
Difference {Negative}
a) Deferred tax assets
b) Deferred tax liability
25. Book Value (-) Tax Base = Temporary
Difference {Positive}
a) Deferred tax assets
b) Deferred tax liability
49. 26. The amounts of income taxes recoverable in
future periods in respect of deductible temporary
differences
a) Deferred tax assets
b) Deferred tax liability
27. The amounts of income taxes payable in future
periods in respect of taxable temporary differences
a) Deferred tax assets
b) Deferred tax liability
50. 26. the amount expected to be recovered to the tax
authorities, If amount already paid exceeds amount
due, then recognize the excess as
a) Current tax assets
b) Current tax liability
27. amount expected to be paid to the tax
authorities at the tax rate enacted by the end of the
reporting period. Unpaid taxes (current) related to
current or prior periods shall be recognized
a) Current tax assets
b) Current tax liability
51. a. Temporary Difference 1.Temporary Difference X
Tax Rate
b. DTL/DTA = 2.Current Tax + Deferred
Tax
c. difference which can be
reversed
3. Carrying Amount – Tax
Base
d. Tax Expense 4. Temporary Difference
MATCH THE FOLLOWINGS
52. MATCH THE FOLLOWING
a. tax payable in future(recoverable) Permanent differences
b. Differences which cannot be
reversed in the subsequent periods
Tax base
C. Unpaid taxes (current) recognised as Deferred tax
D . amount of an asset or liability
attributed to asset or liability for tax
purpose
liability.
53. MATCH THE FOLLOWING
A. IND AS 12 Business combination
B. IND AS 16 Impairment of assets
C. IND AS 33 Accounting for tax
D. IND AS 36 PPE
E. IND AS 103 EPS
54. MATCH
a. Carrying amount of assets Disclosure as per IND AS
12
b. treatment of Income tax in
financial statement.
Accounting Standard -22
c. “Accounting for Taxes on Income” Book value of assets
d. aggregate amount included in the
determination of profit or loss
Tax expense
