CA NITIN GOEL AS 22 CH 10I

AS
ACCOUNTING FOR TAXES ON INCOME
22
Scope This standard prescribes the accounting treatment of taxes on income and
follows the concept of matching expenses against revenue for the period.
This includes determination of the amount of the expense or saving related
to taxes on income in respect of an accounting period & disclosure of such
an amount in the financial statements.
The differences between taxable income and accounting income can be
classified into permanent differences and timing differences
Definitions Net profit or loss for a period, as reported in the statement
Accounting of profit and loss, before deducting income-tax expense or
income (loss) adding income tax saving.

Taxable Amount of the income (loss) for a period, determined in

income accordance with the tax laws, based upon which income-
(tax loss) tax payable (recoverable) is determined.

Tax expense Aggregate of current tax and deferred tax charged or

(tax saving) credited to the statement of profit and loss for the period
Amount of income tax determined to be payable
Current tax (recoverable) in respect of the taxable income (tax loss) for
a period.

Deferred tax Tax effect of timing differences.

Differences between taxable income and accounting
Timing income for a period that originate in one period and are
differences capable of reversal in one or more subsequent periods.
Differences between taxable income and accounting
Permanent income for a period that originate in one period and do not
differences reverse subsequently
Recognition ❖ Tax expense for the period, comprising current tax and deferred tax,
should be included in the determination of net profit or loss for the period.
❖ Permanent differences do not result in deferred tax assets or deferred
tax liabilities.
❖ Taxes on income are considered to be an expense incurred by the
enterprise in earning income and are accrued in the same period as the
revenue and expenses to which they relate. Such matching may result
into timing differences.
❖ The tax effects of timing differences are included in the tax expense in
the statement of profit and loss and as deferred tax assets or as deferred
tax liabilities, in the balance sheet.
Deferred Tax ❖ While recognizing the tax effect of timing differences, consideration of
Assets prudence cannot be ignored. Therefore, deferred tax assets are
recognised and carried forward only to the extent that there is a
reasonable certainty of their realisation.

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CA NITIN GOEL AS 22 CH 10I

❖ This reasonable level of certainty would normally be achieved by

examining the past record of the enterprise and by making realistic
estimates of profits for the future.
❖ Where an enterprise has unabsorbed depreciation or carry forward of
losses under tax laws, deferred tax assets should be recognised only to
the extent that there is virtual certainty supported by convincing evidence
that sufficient future taxable income will be available against which such
deferred tax assets can be realised.
Re- At each balance sheet date, an enterprise re-assesses unrecognized
Assessment deferred tax assets. The enterprise recognizes previously unrecognized
of deferred tax assets to the extent that it has become reasonably certain or
Unrecognized virtually certain, as the case may be, that sufficient future taxable income
Deferred Tax will be available against which such deferred tax assets can be realized
Assets
Measurement ➢ Current tax should be measured at the amount expected to be paid to
(recovered from) the taxation authorities, using the applicable tax rates
and tax laws.
➢ Deferred tax assets and liabilities are usually measured using the tax
rates and tax laws that have been enacted by the balance sheet date.
➢ However, certain announcements of tax rates and tax laws by the
government may have the substantive effect of actual enactment. In
these circumstances, deferred tax assets and liabilities are measured
using such announced tax rate and tax laws.
➢ Deferred tax assets and liabilities should not be discounted to their
present value.
Disclosure Statement of Under AS 22, there is no specific requirement to disclose
profit & loss current tax and deferred tax in the statement of profit and
loss. However, considering the requirements under the
Companies Act, 2013, the amount of income tax and other
taxes on profits should be disclosed.
Balance sheet Deferred tax assets and liabilities should be disclosed
under a separate heading in the balance sheet of the
enterprise, separately from current assets and current
liabilities.
Accounting ❖ The deferred tax in respect of timing differences which reverse during
for Taxes on the tax holiday period should not be recognised to the extent the
Income in the enterprise’s gross total income is subject to the deduction during the tax
situations of holiday period as per the requirements of the Act.
Tax Holiday
❖ Deferred tax in respect of timing differences which reverse after the tax
holiday period should be recognised in the year in which the timing
differences originate.
❖ However, recognition of deferred tax assets should be subject to the
consideration of prudence as laid down in AS 22. For the above purposes,
the timing differences which originate first should be considered to
reverse first

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ASSIGNMENT QUESTIONS
Question 1 Pg no._____
X Ltd., has provided the following information:
On 1st April, 2017 it purchased machinery at cost of ₹ 3,00,000. The machine has useful life of
3 years & expected scrap value of zero. The asset is eligible for 100% depreciation allowance
for tax purposes and SLM is appropriated for accounting purposes. X Ltd. has profit before
depreciation & taxes of ₹ 5,00,000 & the corporate tax is 40% each year. Prepare P&L extract.
Case 1: Tax Rate 40% each year
Case 2: Tax Rate 40%, 35% & 38% respectively for year 2017-18, 2018-19, 2019-20.

Question 2 (ICAI Study Material) Pg no._____

Omega Limited is working on different projects which are likely to be completed within 3
years period. It recognizes revenue from these contracts on percentage of completion method
for financial statements during 2017-2018, 2018-2019 and 2019-2020 for ₹ 11,00,000, ₹ 16,00,000
and ₹ 21,00,000 respectively. However, for Income-tax purpose, it has adopted the completed
contract method under which it has recognised revenue of ₹ 7,00,000, ₹ 18,00,000, and ₹
23,00,000 for years 2017-2018, 2018-2019 and 2019-2020 respectively. Income-tax rate 35%.
Compute deferred tax asset/ liability for the years 2017-2018, 2018-2019 and 2019-2020.

Question 3 (RTP May 2018) / (ICAI Study Material) Pg no._____

X Ltd., has provided the following information:
Depreciation as per accounting records 2,00,000
Depreciation as per income tax records 5,00,000
Unamortised preliminary expenses as per tax record 30,000
There is adequate evidence of future profit sufficiency. How much deferred tax asset/ liability
should be recognised as transition adjustment? Tax rate 50%

Question 4 (RTP May 2020) Pg no._____

The following particulars are stated in the Balance Sheet of PQR Ltd. as on 31.03.2019
(₹ In Lakhs)
Deferred Tax Liability (Cr.) 30.00
Deferred Tax Assets (Dr.) 15.00
The following transactions were reported during the year 2019-20
(i) Tax Rate 30%
(₹ In Lakhs)
(ii) Depreciation as per Books 80.00
Depreciation for tax purposes 70.00
(iii) Items disallowed in 2018-19 & allowed for tax purposes in 2019-20 10.00
(iv) Donations to Private Trusts made in 2019-20 10.00
There were no additions to Fixed Assets during the year. You are required to show the impact
of various items on Deferred Tax Assets and Deferred Tax Liability as on 31.03.2020.

Question 5 (RTP May 2021) Pg no._____

The following information is furnished in respect of Slate Ltd. for the year ending 31-3-2019:
(i) Depreciation as per books ₹ 2,80,000 Depreciation for tax purpose ₹ 1,90,000
The above depreciation does not include depreciation on new additions.
(ii) A new machinery purchased on 1.4.18 costing ₹ 1,20,000 on which 100% depreciation is
allowed in the 1st year for tax purpose whereas Straight-line method is considered
appropriate for accounting purpose with a life estimation of 4 years.

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(iii) The company has made a profit of ₹ 6,40,000 before depreciation and taxes.
(iv) Corporate tax rate of 40%.
Prepare relevant extract of statement of Profit and Loss for the year ending 31-3-2019 and
also show the effect of above items on deferred tax liability/asset as per AS 22

Question 6 (ICAI Study Material) Pg no._____

PQR Ltd.'s accounting year ends on 31st March. The company made a loss of ₹ 2,00,000 for
the year ending 31.3.2018. For the years ending 31.3.2019 and 31.3.2020, it made profits of ₹
1,00,000 and ₹ 1,20,000 respectively. It is assumed that the loss of a year can be carried
forward for eight years and tax rate is 40%. By the end of 31.3.2018, the company feels that
there will be sufficient taxable income in the future years against which carry forward loss
can be set off. There is no difference between taxable income and accounting income except
that the carry forward loss is allowed in the years ending 2019 and 2020 for tax purposes.
Prepare a statement of Profit and Loss for the years ending 2018, 2019 and 2020

Question 7 (RTP Nov 2018) Pg no._____

Beta Ltd. is a full tax-free enterprise for the first ten years of its existence and is in the second
year of its operation. Depreciation timing difference resulting in a tax liability in year 1 and 2
is ₹ 1,000 lakhs and ₹ 2,000 lakhs respectively. From the third year it is expected that the
timing difference would reverse each year by ₹ 50 lakhs. Assuming tax rate of 40%, you are
required to compute to the deferred tax liability at the end of the second year and any charge
to the Profit and Loss account
Solution
As per AS 22, Accounting for Taxes on Income”, deferred tax in respect of timing
differences which originate during the tax holiday period and reverse during the tax holiday
period, should not be recognized to the extent deduction from the total income of an
enterprise is allowed during the tax holiday period as per the provisions of sections 10A and
10B of the Income-tax Act. Deferred tax in respect of timing differences which originate during
the tax holiday period but reverse after the tax holiday period should be recognized in the
year in which the timing differences originate. However, recognition of deferred tax assets
should be subject to the consideration of prudence. For this purpose, the timing differences
which originate first should be considered to reverse first.
Out of ₹ 1,000 lakhs depreciation, timing difference amounting ₹ 400 lakhs (₹ 50 lakhs
x 8 years) will reverse in the tax holiday period and therefore, should not be recognized.
However, for ₹ 600 lakhs (₹ 1,000 lakhs – ₹ 400 lakhs), deferred tax liability will be recognized
for ₹ 240 lakhs (40% of ₹ 600 lakhs) in first year. In the second year, the entire amount of
timing difference of ₹ 2,000 lakhs will reverse only after-tax holiday period and hence, will
be recognized in full. Deferred tax liability amounting ₹ 800 lakhs (40% of ₹ 2,000 lakhs) will
be created by charging it to profit and loss account and the total balance of deferred tax
liability account at the end of second year will be ₹ 1,040 lakhs (240 lakhs + 800 lakhs).

Question 8 (ICAI Study Material) Pg no._____

From the following details of A Ltd. for year ended 31-03-2020, calculate deferred tax asset/
liability as per AS 22 & amount of tax to be debited to the Profit and Loss Account for the year.
Particulars ₹
Accounting Profit 6,00,000
Book Profit as per MAT 3,50,000
Profit as per Income Tax Act 60,000
Tax Rate 20%
MAT Rate 7.50%

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 CA NITIN GOEL AS 22 CH 10I

PRACTICE QUESTIONS
Question 1 (Inter May 2019) (5 Marks) / (RTP Nov 2020) Pg no._____
Write short note on Timing differences and Permanent differences as per AS 22.

Solution
In current practices, companies, in general, prepare books of accounts as per Companies Act,
2013 generating Accounting Profit/Loss and Income-tax Act, 1961 generating Taxable
Profit/Loss. Accounting income and taxable income for a period are seldom the same.
Permanent differences are the differences between taxable income and accounting income
which arise in one accounting period and do not reverse subsequently. For example, an
income exempt from tax or an expense that is not allowable as a deduction for tax purposes.
Timing differences are those differences between taxable income and accounting income
which arise in one accounting period and are capable of reversal in one or more subsequent
periods. For e.g., Depreciation, Bonus, etc.

Question 2 (Inter May 2018) (5 Marks) Pg no._____

Rohit Ltd. has provided the following information:
Particulars Amount
Depreciation as per accounting records 2,50,000
Depreciation as per tax records 5,50,000
Unamortised preliminary expenses as per tax record 40,000
There is adequate evidence of future profit sufficiency. How much deferred tax assets/liability
should be recognized as transition adjustment when the tax rate is 50%?

Solution
Table showing calculation of deferred tax asset / liability
Particulars Amount Timing Deferred Tax Amount @
Difference 50%
Excess depreciation as per 3,00,000 Timing Deferred Tax Liability 1,50,000
tax records
(5,50,000 – 2,50,000)
Unamortised preliminary 40,000 Timing Deferred Tax Asset 20,000
expenses as per tax records
Net deferred tax liability 1,30,000
Net deferred tax liability amounting ₹ 1,30,000 should be recognized as transition adjustment.

Question 3 (RTP Nov 2020) Pg no._____

Rama Ltd. has provided the following information:
Particulars Amount
Depreciation as per accounting records 6,00,000
Depreciation as per tax records 10,00,000
Unamortised preliminary expenses as per tax record 60,000
There is adequate evidence of future profit sufficiency.
You are required to calculate the amount of deferred tax asset/liability to be recognized as
transition adjustment assuming tax rate as 30%?

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 CA NITIN GOEL AS 22 CH 10I

Solution
Table showing calculation of deferred tax asset / liability
Particulars Amount Timing Deferred Tax Amount @
Difference 30%
Excess depreciation as per 4,00,000 Timing Deferred Tax Liability 1,20,000
tax records
(₹ 10,00,000 – ₹ 6,00,000)
Unamortised preliminary 60,000 Timing Deferred Tax Asset 18,000
expenses as per tax records
Net deferred tax liability 1,02,000
Net deferred tax liability amounting 1,02,000 should be recognized as transition adjustment.

Question 4 (Inter Jan 2021) (5 Marks) Pg no._____

The following particulars are stated in the Balance Sheet of HS Ltd. as on 31.03.2019
(₹ In Lakhs)
Deferred Tax Liability (Cr.) 60.00
Deferred Tax Assets (Dr.) 30.00

The following transactions were reported during the year 2019-20

(i) Tax Rate 30%
(₹ In Lakhs)
(ii) Depreciation as per accounting records 160.00
Depreciation as per income tax records 140.00
(iii) Items disallowed in 2018-19 & allowed for tax purposes in 2019-20 20.00
(iv) Donations to Private Trusts 20.00
There were no additions to Fixed Assets during the year. You are required to show the impact
of various items on Deferred Tax Assets & Deferred Tax Liability as on 31.03.20 as per AS 22.

Solution
Impact of various items in terms of AS 22 deferred tax liability/deferred tax asset
(1) Difference in Depreciation- Generally, written down value method of depreciation is
adopted under income Tax Act which leads to higher depreciation in earlier years of useful
life of the asset in comparison to later years. It is timing difference for which reversal of
Deferred tax liability is required.
Reversal of DTL= (160 – 140) Lakhs X 30% = 6 Lakhs
(2) Disallowances, as per IT Act of earlier years- Due to disallowance tax payable for the
earlier years was higher on this account. It is responding timing difference which required
Reversal of Deferred tax assets.
Reversal of Deferred tax assets = 20 Lakhs X 30% = 6 Lakhs
(3) Donations to private trusts is not an allowable expenditure under IT Act. It is permanent
difference. Hence, no reversal of tax is required

Question 5 (Inter July 2021) (5 Marks) Pg no._____

Following particulars are stated in the Balance Sheet of Deep Limited as on 31st March, 2020:
(₹ In Lakhs)
Deferred Tax Liability (Cr.) 28.00
Deferred Tax Assets (Dr.) 14.00
The following transactions were reported during the year 2020 -2021:
(i) Depreciation as per books was ₹ 70 Lakhs whereas Depreciation for Tax purposes was ₹
42 Lakhs. There were no additions to Fixed Assets during the year.

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 CA NITIN GOEL AS 22 CH 10I

(ii) Expenses disallowed in 2019-20 and allowed for tax purposes in 2020-21 were ₹ 14 Lakhs.
(iii) Share issue expenses allowed under section 35(D) of the Income Tax Act, 1961 for the year
2020-21 (1/10th of ₹ 70.00 lakhs incurred in 2019-20).
(iv) Repairs to Plant and Machinery were made during the year for ₹ 140.00 Lakhs and was
spread over the period 2020-21 and 2021-22 equally in the books. However, the entire
expenditure was allowed for income-tax purposes in the year 2020-21.
Tax Rate to be taken at 40%.
You are required to show the impact of above items on Deferred Tax Assets and Deferred Tax
Liability as on 31st March, 2021.

Solution
Impact of various items in terms of deferred tax liability/deferred tax asset on 31.3.21
Transactions Analysis Nature of Effect Amount
difference (₹)
Difference in Generally, WDV method of dep. is Responding Reversal 28 lakhs x
depreciation adopted under IT Act which leads to timing of DTL 40%
higher dep. in earlier years of difference = ₹ 11.20
useful life of asset in comparison lakhs
to later years.
Disallowances, Tax payable for the earlier year Responding Reversal 14 lakhs x
as per IT Act, was higher on this account. timing of DTA 40%
of earlier difference = 5.6 lakhs
years
Share issue Due to disallowance of full Responding Reversal 7 lakhs x
expenses expenditure under IT Act, tax timing of DTA 40%
payable in the earlier years was difference = ₹ 2.8
higher. lakhs
Repairs to Due to allowance of full Originating Increase 70 lakhs x
plant and expenditure under IT Act, tax timing in DTL 40%
machinery payable of the current year will be difference =28 lakhs
less.

Question 6 (RTP May 2022) Pg no._____

The following transactions were reported by PQR Ltd. during the year 2020-2021:
(i) Tax Rate 30%
(₹ In Lakhs)
(ii) Items disallowed in 2019-20 & allowed for tax purposes in 2020-21 20.00
(iii) Interest to Financial Institutions accounted in the books on accrual 20.00
basis, but actual payment was made before the due date of filing
return and allowed for tax purpose also.
(iv) Donations to Private Trust made in 2020-2021 (not allowed under 10.00
Income Tax Laws)
You are required to show impact of the above items in terms of Deferred Tax Assets/Deferred
Tax Liability for the year ended 31.03.2021.

Solution
Impact of various items in terms of deferred tax liability/deferred tax asset on 31.3.21

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 CA NITIN GOEL AS 22 CH 10I

Transactions Analysis Nature of Effect Amount

difference (₹)
Disallowances, Tax payable for the earlier year Timing Reversal 20 lakhs x
as per IT Act, was higher on this account. difference of DTA 30%
of earlier =₹6
years lakhs
Interest to It is allowed as deduction under IT No Timing Not Not
financial Act, if the payment is made before difference Applicable Applicable
institutions the due date of filing the return of
income
Donation to Not an allowable expenditure Permanent Not Not
private trusts under IT Act. difference Applicable Applicable

Question 7 Pg no._____
A company, ABC Ltd., prepares its accounts annually on 31st March. The company has
incurred a loss of ₹ 1,00,000 in the year 2018 and made profits of ₹ 50,000 and 60,000 in year
2019 and year 2020 respectively. Under the tax laws, loss can be carried forward for 8 years
and tax rate is 40% and at the end of year 2018, it was virtually certain, supported by convincing
evidence, that the company would have sufficient taxable income in the future years against
which unabsorbed depreciation and carry forward of losses can be set-off. Also there is no
difference between taxable income and accounting income except that set-off of loss is
allowed in years 2019 and 2020 for tax purposes. Current tax in the year 2020 is ₹ 4,000. Show
the effect of above transactions by preparing the Statement of Profit and Loss

Solution
Statement of Profit & Loss
2018 2019 2020
Profit / (Loss) (1,00,000) 50,000 60,000
Less: Current Tax - - (4,000)
[10,000*40%]
Deferred Tax:
Tax effect of timing differences originating
during the year (1,00,000 x 40%) 40,000
Tax effect of timing differences reversed/
adjusted during the year (50,000 x 40%) (20,000) (20,000)
Profit / (Loss) after tax (60,000) 30,000 36,000

Question 8 (ICAI Study Material) Pg no._____

Y Ltd. is a full tax free enterprise for the first ten years of its existence and is in the second
year of its operation. Depreciation timing difference resulting in a tax liability in year 1 and 2
is ₹ 200 lakhs and ₹ 400 lakhs respectively. From the third year it is expected that the timing
difference would reverse each year by ₹ 10 lakhs. Assuming tax rate of 40%, find out the
deferred tax liability at the end of the second year and any charge to the Profit and Loss
account

Solution
As per AS 22, ‘Accounting for Taxes on Income’, deferred tax in respect of timing differences
which originate during the tax holiday period and reverse during the tax holiday period, should
not be recognised to the extent deduction from the total income of an enterprise is allowed

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 CA NITIN GOEL AS 22 CH 10I

during the tax holiday period as per the provisions of sections 10A and 10B of the Income-tax
Act. Deferred tax in respect of timing differences which originate during the tax holiday period
but reverse after the tax holiday period should be recognised in the year in which the timing
differences originate. However, recognition of deferred tax assets should be subject to the
consideration of prudence. For this purpose, the timing differences which originate first
should be considered to reverse first.
Out of ₹ 200 lakhs timing difference due to depreciation, difference amounting ₹ 80 lakhs (₹
10 lakhs x 8 years) will reverse in the tax holiday period and therefore, should not be
recognised. However, for ₹ 120 lakhs (₹ 200 lakhs – ₹ 80 lakhs), deferred tax liability will be
recognised for ₹ 48 lakhs (40% of ₹ 120 lakhs) in first year.
In the second year, the entire amount of timing difference of ₹ 400 lakhs will reverse only
after tax holiday period and hence, will be recognised in full. Deferred tax liability amounting
₹ 160 lakhs (40% of ₹ 400 lakhs) will be created by charging it to profit and loss account and
the total balance of deferred tax liability account at the end of second year will be ₹ 208 lakhs
(48 lakhs + 160 lakhs).

Question 9 (RTP Nov 2019) Pg no._____

The Accountant of Sohna Ltd. provides following information for the year ended 31-03-2020:
Particulars ₹
Accounting Profit 7,50,000
Book Profit as per MAT 4,37,500
Profit as per Income Tax Act 90,000
Tax Rate 20%
MAT Rate 7.50%
You are required to calculate the deferred tax asset/ liability as per AS 22 and amount of tax
to be debited to the Profit and Loss Account for the year.

Solution
Tax as per accounting profit 7,50,000 x 20% = ₹ 1,50,000
Tax as per Income-tax Profit 90,000 x 20% = ₹ 18,000
Tax as per MAT 4,37,500 x 7.50% = ₹ 32,812.50
Tax expense= Current Tax + Deferred Tax
₹ 1,50,000 = ₹ 18,000+ Deferred tax
Therefore, Deferred Tax liability as on 31-03-2020 = ₹ 1,50,000 – ₹ 18,000 = ₹ 1,32,000
Amount of tax to be debited in Profit and Loss account for the year 31-03-2020
Current Tax + Deferred Tax liability + Excess of MAT over current tax
= ₹ 18,000 + ₹ 1,32,000 + ₹ 14,812.50 (32,812.50 – 18,000) = ₹ 1,64,812.50

Question 10 (Inter Nov 2019) (5 Marks) Pg no._____

Sheetal Ltd. has provided the following information for the year ended 31-03-2020:
Particulars ₹
Accounting Profit 9,00,000
Book Profit as per MAT 5,25,000
Profit as per Income Tax Act 95,000
Tax Rate 30%
MAT Rate 7.50%
You are required to calculate the deferred tax asset/ liability as per AS 22 and amount of tax
to be debited to the Profit and Loss Account for the year.

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 CA NITIN GOEL AS 22 CH 10I

Solution
Tax as per accounting profit 9,00,000 x 30% = ₹ 2,70,000
Tax as per Income-tax Profit 95,000 x 30% = ₹ 28,500
Tax as per MAT 5,25,000 x 7.50% = ₹ 39,375
Tax expense= Current Tax + Deferred Tax
₹ 2,70,000 = ₹ 28,500+ Deferred tax
Therefore, Deferred Tax liability as on 31-03-2020 = ₹ 2,70,000 – ₹ 28,500 = ₹ 2,41,500
Amount of tax to be debited in Profit and Loss account for the year 31-03-2020
Current Tax + Deferred Tax liability + Excess of MAT over current tax
= ₹ 28,500 + ₹ 2,41,500 + ₹ 10,875 (39,375 – 28,500) = ₹ 2,80,875

Question 11 (Inter Nov 2020) (5 Marks) Pg no._____

From the following details of Aditya Limited for accounting year ended on 31st March, 2020
Particulars ₹
Accounting Profit 15,00,000
Book Profit as per MAT 7,50,000
Profit as per Income Tax Act 2,50,000
Tax Rate 20%
MAT Rate 7.50%
You are required to calculate the deferred tax asset/ liability as per AS 22 and amount of tax
to be debited to the Profit and Loss Account for the year.

Solution
Tax as per accounting profit 15,00,000 x 20% = ₹ 3,00,000
Tax as per Income-tax Profit 2,50,000 x 20% = ₹ 50,000
Tax as per MAT 7,50,000 x 7.50% = ₹ 56,250
Tax expense= Current Tax + Deferred Tax
₹ 3,00,000 = ₹ 50,000+ Deferred tax
Therefore, Deferred Tax liability as on 31-03-2020 = ₹ 3,00,000 – ₹ 50,000 = ₹ 2,50,000
Amount of tax to be debited in Profit and Loss account for the year 31-03-2020
Current Tax + Deferred Tax liability + Excess of MAT over current tax
= ₹ 50,000 + ₹ 2,50,000 + ₹ 6,250 (56,250 – 50,000) = ₹ 3,06,250

Question 12 (RTP May 2021) Pg no._____

What are the disclosure requirements for deferred tax assets and deferred tax liabilities in
the balance sheet as per AS 22?

Solution
The break-up of deferred tax assets and deferred tax liabilities into major components of the
respective balance should be disclosed in the notes to accounts. Deferred tax assets and
liabilities should be distinguished from assets and liabilities representing current tax for the
period.
Deferred tax assets and liabilities should be disclosed under a separate heading in the
balance sheet of the enterprise, separately from current assets and current liabilities. The
nature of the evidence supporting the recognition of deferred tax assets should be disclosed,
if an enterprise has unabsorbed depreciation or carry forward of losses under tax laws.

Question 13 (RTP Nov 2021) Pg no._____

Can an enterprise offset deferred tax assets and deferred tax liabilities? If yes, prescribe the
conditions required for such offset as per provisions of AS 22.

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 CA NITIN GOEL AS 22 CH 10I

Solution
Yes. It can offset deferred tax assets and deferred tax liabilities.
As per AS 22, an enterprise should offset deferred tax assets and deferred tax liabilities if:
(i) the enterprise has a legally enforceable right to set off assets against liabilities
representing current tax; and
(ii) the deferred tax assets and the deferred tax liabilities relate to taxes on income levied
by the same governing taxation laws.

Question 14 (RTP May 2019) Pg no._____

Is it permissible not to recognize deferred tax liability on the ground that Company expects
that there will be losses both for accounting & tax purposes in near future? You are required
to give advice to company.

Solution
The Company should provide for deferred tax liability on the timing differences irrespective
for the fact that these timing differences will reverse in the period in which the Company
expects to be in loss both from the accounting as well as tax point of view. It may, however,
be added that the deferred tax liability recognized at the balance sheet date will give rise to
future taxable income at the time of reversal thereof.

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