CA Inter P1 · Chapter 5 · Question 10 of 12
Case: For the first year of operations of Sahyadri Agro Ltd, depreciation as per books is ₹4,00,000 and as per income tax law is ₹6,00,000. There are no other differences and the tax rate is 30%. Under AS 22, the company should recognise:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) A deferred tax liability of ₹60,000
Explanation
Higher tax depreciation reduces current taxable income, but the difference will reverse in later years when book depreciation exceeds tax depreciation. This is a timing difference giving rise to a deferred tax liability = (6,00,000 - 4,00,000) x 30% = ₹60,000.
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