26 June 2008
For calculation of Deferred tax relating to timing difference arising out of fixed assets, do we take the difference between WDV as per books and WDV as per Income tax; or do we take the difference between depreciation as per books and depreciation as per Income tax act.
27 June 2008
It is correct to take the WDV differences, because other adjustments like discarded assets, assets disposed of etc. would also be automatically taken care of.
27 June 2008
It actually depends which approach you are following? Liability method or P&L method.
In case of liability method based on WDV and charge for the current year would be difference between current year closing Def tax and previous year closing def tax
In case of p&l method, difference between book and tax depreciation and that would be charge for the period/year and it should be added to opening deferred tax asset/liability
In either case answer will not change.
Except under liability method you recognise def tax on expenses such as share issue expense,gratuity which is directly taken to reserves on AS 15R etc., which are not taken to profit and loss account.
05 July 2008
I fully agree with the replies given above. However, the method of considering the WDV difference is more appropriate as the same also takes care of change in tax rates (If any). One should also calculate the provision required for the year by taking into account the difference of depreciation for the year as per Co Act and I.Tax and reconcile the Deferred Taxes calculated by both methods.
CAclubindia
