Financial Reporting (Ind AS)MCQQuestion 5888 of 507
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Under Ind AS 12, 'Income Taxes', an entity has plant and machinery with a carrying amount of ₹15,00,000 as per books and a tax base of ₹10,00,000 as per tax laws. The applicable corporate tax rate is 25%. What is the nature and amount of deferred tax to be recognized?

Select Your Answer (Keyboard: A, B, C, D)
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Correct Answer

✅ Option B — Deferred Tax Liability of ₹1,25,000

All Options:

  • ADeferred Tax Asset of ₹1,25,000
  • BDeferred Tax Liability of ₹1,25,000 ✓
  • CDeferred Tax Liability of ₹2,50,000
  • DNo deferred tax since difference will not reverse

Detailed Solution & Explanation

Computation of Deferred Tax under Ind AS 12:
1. **Temporary Difference**:
Carrying Amount=₹15,00,000Carrying Amount\displaystyle \text{Carrying Amount} = ₹15,00,000
Tax Base=₹10,00,000Tax Base\displaystyle \text{Tax Base} = ₹10,00,000
Difference=₹15,00,000−₹10,00,000=₹5,00,000Difference\displaystyle \text{Difference} = ₹15,00,000 - ₹10,00,000 = ₹5,00,000
2. When Carrying Amount of an asset > Tax Base, it gives rise to a **Taxable Temporary Difference** because future economic benefits will exceed the tax depreciation available, leading to future taxable profits.
3. **Deferred Tax Liability (DTL)**:
DTL=Taxable Temporary Difference×Tax Rate=₹5,00,000×25%=₹1,25,000\displaystyle \text{DTL} = \text{Taxable Temporary Difference} ×\displaystyle \times Tax Rate\displaystyle \text{Tax Rate} = ₹5,00,000 ×\displaystyle \times 25\% = ₹1,25,000
Hence, **Option B** is the correct answer.

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