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Calculation of deffered tax

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Querist : Anonymous

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Querist : Anonymous (Querist)
02 May 2016 Dear Experts,
Assume i have purchased machinery
Rs. 1 Lakh on 1/10/2015, depreciation
As per company act. Is 9500/- (SLM) and
Depreciation as per income tax is 15000/-
However useful life of machinery is 10
Year, please let me know the complete treatment
of deffered tax how the DTL/DTA will create
and how it will be reverse in subsequent year

Waiting for your kind reply.....

Thanx & Regard
Radhika chauhan

02 May 2016 Here DTL has to be created for 15000-9500*applicable tax rate.
Income tax depreciation is based on wdv so it will decrease over the period.
DTL has to be created when IT depreciation is more and it has to be reversed when it is less.

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Querist : Anonymous

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Querist : Anonymous (Querist)
02 May 2016 Sir....15000 less 9500, 5500*30.9 1699.5/-
tax here DTL will be create of 1699.5/-
right.....
sir please let me know complete treatment
with reversal also....




02 May 2016 Your calculation is right. Calculate like this and accumulate till depreciation as per IT is more than 9500. calculate like this and reverse the entry when the IT depreciation is less than 9500.

02 May 2016 Entry for creating DTL would be -

Def Tax Expense (PL) Dr.
DTL (BS) Cr.

with the calculation as described above, you will keep creating DTL for each year. And when this differences start reversing, you need to reverse the DTL also.
Entry for same would be -
DTL (BS) Dr.
Def Tax Expense (PL) Cr.

Thanks

02 May 2016 At the end DTL should be ZERO. You can prepare complete schedule in advance so that correct entry can be passed.

02 May 2016 Appreciate the more clarification.

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Querist : Anonymous

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02 May 2016 Sir...till three year dep. As per income tax
Will be exceed then dep. As per company act.
As follow...
Year WDV dep. IT DEP co.
1 100000 15000 9500
2 85000 12750 9500
3 72250 10838 9500
4 61412 9212 9500

Hence till three year dep. As per IT act.
is exceed than as per co. Act. And the
in three year the difference is 10088/-
10088*30.9 3117/- the LTA will be create
in three year 3117/- after that plz tell me
how long will i have to reverse the same...




02 May 2016 WDV IT Dep CO Dep Diff Tax rate (DTL) / DTA Cumulative
1 100000 15,000 9500 -5,500 30.90% -1,700 -1,700
2 85,000 12,750 9500 -3,250 30.90% -1,004 -2,704
3 72,250 10,838 9500 -1,338 30.90% -413 -3,117
4 61,413 9,212 9500 288 30.90% 89 -3,028
5 52,201 7,830 9500 1,670 30.90% 516 -2,512
6 44,371 6,656 9500 2,844 30.90% 879 -1,633
7 37,715 5,657 9500 3,843 30.90% 1,187 -446
8 32,058 4,809 9500 4,691 30.90% 1,450 1,004
9 27,249 4,087 9500 5,413 30.90% 1,673 2,676
10 23,162 3,474 9500 6,026 30.90% 1,862 4,538

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Querist : Anonymous

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02 May 2016 Sandeep sir many thanks for your detailed
Clarification... as per your calculation
in 8 year DTL become Zero.. but at 10 year DTA is 4538 plz
let me know what will be the treatment of DTA

Expecting reply soon....

02 May 2016 Hi Radhika...its not becoming zero at 8th year. You need to calculate cumulative value of DTL/ DTA at each year end. It will go beyond 8 years. I also calculated cumulative value of dta/DTL in your example but I think due to copy paste error its not appearing here.

Pls share ur mail I'd I will sent you the excel file tomorrow.

Thanks

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Querist : Anonymous

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03 May 2016 Hi,
sandeep sir... plz provide me complete solution of my query
as above mentioned with year wise calculation and accounting entry for the same,
email I'D rgoyal.423@rediffmail.com




03 May 2016 Hi..Please chk ur mail. In case of any query pls revert. Thanks

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Querist : Anonymous

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Querist : Anonymous (Querist)
03 May 2016 sandeep sir......... i have gone through your attachment in which you have mention...on year 10th as per company act. only 5000/- value will remain as residual value but as per income tax 19687/- will be left and in year 11th you have charged full dep. as per company act. 5000/- and also full as per income tax 19687/- my query is sir i think 15% dep. as per income tax should be charged on 19687 not full,
also request you to pass the accounting entry year wise for batter understanding..

pls revert...

03 May 2016 in last year u will scrap the asset. so it will be shown as deletion in accounts as well as tax. It is not depreciation it's deletion. and upon deletion deferred tax will also become zero.




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Querist : Anonymous

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03 May 2016 sir pls provide me the accounting entry of all year till the asset scrap.....
pls... waiting for your reply......

03 May 2016 Radhika...pls give me sometime, will share the entries. Otherwise if u can make entries and mail to me i will chk and revert at the earliest.

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Querist : Anonymous

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03 May 2016 No problem take your time but whenever you get the time pls share
All the entries from the bignning till scrap
The asset as per calculation made by you,
:
Waiting for your valuable reply....

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Querist : Anonymous

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04 May 2016 Sandeep sir,
Pls revert....

04 May 2016 Hi Radhika...file mailed..pls check

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Querist : Anonymous

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06 May 2016 Sandeep sir,
I have post the query at your Email I'D pls
Check & revert...:

06 May 2016 hi Radhika...I hv not received ur mail. pls send again.

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Querist : Anonymous

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Querist : Anonymous (Querist)
06 May 2016 Hello Sandeep Sir,
I think No Need to send the mail because
The query is not much biger.. i also study
Your latest attactment all the point pertains
To this particular query was really well
Explained by you however some confussion
also thereon as follow..
(1) you have disclose the diff -14687/- plz
Clarify how this diff is arries,
(2) wdv as per IT act.at the end of year 10th is 19687/- plz
Clarify at the end of 10th year what will the
treatment of this figure 19687/-

Pls revert....

06 May 2016 This difference is bcoz of wdv at the end of 10th year...10 year is life of asset and u will dispose off the asset and dta / dtl on that day will also be charged off.

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Querist : Anonymous

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06 May 2016 Sir.. the diff should be -15149/- instead of
-14687
Plz check...

06 May 2016 Sorry...i couldn't make it. Pls check every figure is formula driven in the file.

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Querist : Anonymous

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06 May 2016 Sir.. i am sorry actually i have been
Confused you were right... i want to know
At the end of year 10th after charging the
Dep. As per IT act. Wdv was left 19687/-
Plz let me know what will be the treatment
of this figure 19687/-
plz revert....

06 May 2016 Radhika...i think i am not able to clear ur query properly here bcoz of communication gap.

I mentioned in the file that i am assuming it is the only asset in the block and after 10 years it will be disposed off / sold.

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Querist : Anonymous

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06 May 2016 Sir as per com. Act. You have disposed
The asset by passing entry..
Loss on asset Dr..5000
To asset...5000
This is the treatment for books of accounts..
But the value of wdv of IT 19687/- is still left
What about this WDV

06 May 2016 u will also dispose it off in IT and short term capital gain / loss will arise = wdv - sale value (if any).

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Querist : Anonymous

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07 May 2016 Ok.. but the Entry of disposing asset
cannot be pass because the WDV as per
IT is not reflect in books of accounts' right'
plz revert..

07 May 2016 We pass entries in books as per companies act only. Based on books entry we do the treatment in tax.

07 May 2016 The remaining IT WDV 19687/- will be considered for IT working.

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Querist : Anonymous

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07 May 2016 Sir... IT working means

07 May 2016 The following is simple IT working for payment of Income tax.

Tax computation for AY 2016-17.
Book profit xxxxxx
Add
Book depreciation xxx
Provisions xxx

Less
IT depreciation xxx

Taxable profit xxxxxx

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Querist : Anonymous

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07 May 2016 Sir.. plz explain the treatment of remaining
IT WDV 19687/- with an example... weather
It will be add or less,

07 May 2016 It will be less only.
If asset is continued to be used continue the IT depreciation in IT workings.
In case it is disposed off for 10000. Claim in IT 9687 as loss on sale of asset.

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Querist : Anonymous

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07 May 2016 Sir if the asset dispose in Rs. 10000 then 9687/-
Will be add or less

07 May 2016 It will be less............

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Querist : Anonymous

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07 May 2016 Sir.. weather cumulative DTL and DTA will
Also be add/less

08 May 2016 Here there is no DTA only DTL.
Pass the following entry on the balance DTL.

DTL(BS) Dr
Deffered tax expense (P & L) Cr.

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Querist : Anonymous

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08 May 2016 Sir... assume in AY 2016-17 there was
Cumulative DTL 1500 and i have pass the
Entry for the same i.e,
deff. Tax exp. DR..1500
To DTL..1500
However by passing this said entry profit
Become reduce,
pls let me know while computing the income
will this 1500 shall be Add or less

08 May 2016 The entry is
DTL (BS) Dr 1500
To Deff tax Exp. (P % L) Cr 1500

By passing the entry profit will increase.

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Querist : Anonymous

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08 May 2016 Sir... i know by passing your above suggested
Entry the profit become increase,
However this entry will be pass when
IT dep. Will be less then the dep. As per
com. Act.
My query was assume in AY 2016-17
I have pass the entry.. i.e,
Deff. Tax exp DR....1500
To DTL ....1500

As there was cumulative DTL of 1500 in AY
2016-17,
pls let me know while computing income
for AY 2016-17 will this 1500 be add or less,

09 May 2016 It is less only.................

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Querist : Anonymous

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09 May 2016 Ok.. if i have in next year i have reversal
The entry. I.E,
DTL DR...
To deff. Tax. Exp...
then it will be add right...

09 May 2016 Entry is fully closed for this asset no more entry or add in next year.



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