Deferred tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 September 2012 Can anyone please tell me the correct way to calculate depreciation with the following details :

W.D.V as per Co act as on 31-03-2012 : Rs.19,06,589

Depreciation for F.Y. 2011-12 as per Co.act : Rs. 6,66,907

W.D.V as per Income Tax act as on 31-03-2012 : Rs. 24,82,886

Depreciation as per Income Tax Act for F.Y 2011-12 : Rs. 4,49,693

Opening Deferred tax balance : NIL

Kindly show the complete detailed calculation .

Thanx...

Amol S Joglekar

Amol S Joglekar (Expert)
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18 September 2012 What is the query? If opening balance is NIL and you want to make deferred tax entry.. make it for the full amount of difference between income tax depreciation and companies act depreciation. (Calculate it on ACCUMULATED depreciation so far)

Querist : Anonymous

Querist : Anonymous (Querist)

18 September 2012 Sir , i have the query regarding the two methods of calculating the deferred tax :

1. WDV as per Co Act : Rs. 1906589
WDV as per IT Act : Rs. 2482886
Difference : Rs. 576297
Def tax Asset : Rs. 178078

2. Dep as per Co. Act : Rs. 666907
Dep as per IT Act : Rs. 449693
Difference : Rs. 217214
Def Tax Asset : Rs. 67119

-Now my first question is that (1) method is correct or (2) ?

-My second question is that suppose that opening bal of DTA is Rs. 20,000 .So , now what would be the additional tax liability or asset we need to create if we follow (1) or (2) method ?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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20 July 2024 Based on the information provided, it appears you are dealing with differences in the values of Fixed Assets and Depreciation between the Companies Act (Co. Act) and Income Tax Act (IT Act), which leads to differences in Deferred Tax Assets (DTA). Let's address your questions step by step:

### Method for Calculating Deferred Tax Assets (DTA)

1. **Difference in Fixed Assets (WDV):**
- WDV (Written Down Value) as per Co. Act: Rs. 1,906,589
- WDV as per IT Act: Rs. 2,482,886
- Difference: Rs. 576,297
- DTA related to this difference: Rs. 178,078

This method typically involves calculating DTA based on the temporary differences arising from the different values of Fixed Assets (WDV) under Co. Act and IT Act. The DTA is recognized for the future tax benefits expected to be realized when the higher IT Act WDV leads to lower taxable income in future periods.

2. **Difference in Depreciation:**
- Depreciation as per Co. Act: Rs. 666,907
- Depreciation as per IT Act: Rs. 449,693
- Difference: Rs. 217,214
- DTA related to this difference: Rs. 67,119

This method involves calculating DTA based on the temporary differences arising from different depreciation amounts allowed under Co. Act and IT Act. The DTA is recognized for the future tax benefits expected to be realized when the higher Co. Act depreciation leads to lower taxable income in future periods.

### Answers to Your Questions:

**1. Which method is correct?**
- Both methods (1) and (2) are correct in the context of accounting for deferred tax. Companies typically calculate DTA based on both differences in Fixed Assets (WDV) and Depreciation between Co. Act and IT Act. The calculations you've provided seem to reflect this approach.

**2. Additional Tax Liability or Asset to be Created:**
- If the opening balance of DTA is Rs. 20,000, and considering the additional DTA amounts calculated:
- For the difference in Fixed Assets (WDV): Rs. 178,078
- For the difference in Depreciation: Rs. 67,119
- The additional DTA that would need to be recognized or adjusted would be the sum of these amounts: Rs. 178,078 + Rs. 67,119 = Rs. 245,197.

### Conclusion:

- Both methods (1) and (2) are essential for calculating Deferred Tax Assets accurately.
- The additional DTA to be recognized or adjusted would be Rs. 245,197, considering the opening balance of Rs. 20,000.
- Ensure that these calculations are supported by detailed workings and comply with accounting standards (such as AS 22 for Deferred Tax) to accurately reflect the financial position and future tax implications of the company.

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