Doubts when AS-22 and Total Income Statement..Urgent Sir!!!

This query is : Resolved

Rajesh (Querist)
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30 August 2010 Dear Experts,
Requires urgent attention sir!!!
In case of Level II firms also AS-22 (Accounting for Income Taxes apply).
After analysing the Profit & Loss Account, the reasons for the difference in the book profit and tax profit i am able to arrive. Every thing is going to be permanent difference except Section 43B. That is the only expense which is capable of reversal due to time(i.e. Temporary Difference).
So
1)since the difference in book profit and tax profit is due to an expense, should i have to create Deferred Tax Asset?
2) In case of Deferred Tax Asset has to be created should i have to pass the entry in tally as
Deferred Tax Asset A/c Dr.
To P&L Account
Is the above entry correct?
3) By passing this entry alone will i be able to give doubt effect one showing it as an income in the p&L account and the other one showing it as an asset in the balance sheet...Does this amount to following normally accepted accounting principle?
4)If i pass the above entry then while computing Total Income statement as per Income Tax Act, can i deduct the Deferred Tax debited in the P&L account?
Thanks for the every one who has read this and also replied.
With regards,
Rajesh.

Arun

Arun (Expert)
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31 August 2010 The Timing Differences can arise on account of the following dis allowances

1. depreciation under Income tax allowable where as Depreciation charged to ur p&l a/c might be as Per companies Act is disallowed.

2. Provisions are not allowable under Income Tax Act. Eg. Provision for Doubtful debts. (Everthough ascertained)

3. Bonus Provision made not paid with in due date can be claimed as deduction in the year of Payment.

4. Non Deduction of TDS , allowable only in the year of Payment.

5. Preliminary expenses , VRS Compensation

Kindly go through the Provisions from Sec 35 of the Income tax Act. The provisions may rise the timing differences.

Further , Deferred Tax Asset on account of Dis allowances U/s 43B needs to be recognised since it will get reversed in the year of payment.

Deferred Tax asset can not be recognised if it cannot be reversed in near future.

6. The entry will be

Deferred TAx A/C (P&L) Dr
to Deferred Tax A/c (Balance Sheet)

7. While computing total income u have to consider Profit before Tax. Not Below the line item.

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