Deferred Tax

This query is : Resolved

CA Annie (Querist)
Follow

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.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
Follow

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.

Sakshi Gumbar

Sakshi Gumbar (Expert)
Follow

27 June 2008 Yes i agree with Mr.Srinivasaraghavan butthe difference is to be taken as follows:
Opg Wdv Clg WDV Difference
as per books as per books

X A X-A
Y B Y-B
Net diff (X-A)-(Y-B)

Net diff is timing diff for calculating Deffered tax.

Amit Bajaj

Amit Bajaj (Expert)
Follow

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.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
Follow

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.

CA Annie

CA Annie (Querist)
Follow

06 July 2008 Thank you very much all of you...That was really helpful.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now