Illustration 3 – Deferred Tax Effects :

A33. An enterprise has an asset with a carrying amount of Rs. 1,000 lakhs. Its recoverable amount is Rs. 650 lakhs. The tax rate is 30% and the carrying amount of the asset for tax purposes is Rs. 800 lakhs. Impairment losses are not allowable as deduction for tax purposes. The effect of the impairment loss is as follows:

 

Amount in Rs. lakhs

Impairment Loss recognised in the statement of profit and loss	350
Impairment Loss allowed for tax purposes	—
Timing Difference	350
Tax Effect of the above timing difference at 30% (deferred tax asset)	105
Less: Deferred tax liability due to difference in depreciation for accounting purposes and tax purposes [(1,000 – 800) x 30%]	60
Deferred tax asset	45

 

A34. In accordance with AS 22, Accounting for Taxes on Income, the enterprise recognises the deferred tax asset subject to the consideration of prudence as set out in AS 22.