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AS-22

02 February 2011

1) As per AS-22 one of the condition for setting of DTA and DTL is enterprise has a legally enforceable right to set-off the recognized amounts.

In this context what do we mean by LEGAL ENFORCEABLE RIGHT ?????

2)This accounting standard uses words current tax assets and current tax liability Does it mean by advance tax paid (current tax asset) and provision for tax (current tax liability) ????

3) Please clarify about reasonable certainty and virtual certainty ????

Please reply only those who have proper knowledge of this accounting standard.

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25 Replies

ankit (article) (27 Points)
Replied 02 February 2011

Originally posted by : nikita
	1) As per AS-22 one of the condition for setting of DTA and DTL is enterprise has a legally enforceable right to set-off the recognized amounts. In this context what do we mean by LEGAL ENFORCEABLE RIGHT ????? 2)This accounting standard uses words current tax assets and current tax liability Does it mean by advance tax paid (current tax asset) and provision for tax (current tax liability) ???? 3) Please clarify about reasonable certainty and virtual certainty ???? Please reply only those who have proper knowledge of this accounting standard.

see legally enforceable right means a right which is enforceable and protected by law

ankit (article) (27 Points)
Replied 02 February 2011

Also there is no such word as crrent tax asset . AS has used the word deffered tax asset and liability

(Guest)

Hi!

Current Tax Assets means the 'Tax payable as per Tax Laws for the reporting period'.

CS Asmita Mehta (CS) (308 Points)
Replied 02 February 2011

Mr. ankit read AS-22 first and than answer. Thats why i written reply only when you have proper knowledge. And i dont want defination of legal enforceable law i want its example.......

(Guest)

Hi!

Some rechnical problem occured to I could post only part earlier.

Now, when we prepare Balance Sheet at the end of reporting period we make provision for current tax i.e. tax payable as per tax laws for current year.

And whatever tax is paid as advance tax during the year is debited to a seperate a/c like 'Advance Tax' a/c.

Now the question while drafting final balance sheet shall amount of 'advance tax' shall be shown as 'Current Assets' & provision as 'Current Liabilities'. So the AS-22 clarifies in this regarding as if there is enforceable right the set off both a/c other wise show seperately.

reasonable certainty -->
there is probability like history of high earning.

virtual certainty -->
with some convincing evidence.

With Regards,

Kunal Agrawal

CS Asmita Mehta (CS) (308 Points)
Replied 02 February 2011

Originally posted by : Kunal Agrawal
	Hi! Current Tax Assets means the 'Tax payable as per Tax Laws for the reporting period'.

tax payable as per tax law is cuerrent tax and not current tax assets.

1 Like

ankit (article) (27 Points)
Replied 02 February 2011

miss nikita the AS has used the word current tax and not current tax asset, and current tax means tax for current year which is payable.

there is a link for you to the AS-22.Please ask the questions only if u have read the stuff...

https://www.archimedestechlaw.com/Updates/AS/AS22.pdf

(Guest)

Enforceable right means right that is given by A legal authority and enforeable without any compromise.

Some people may argue that credit of Advance Tax will be available only at the time of assessment and not before that. So in Income Tax Act, 1961 a section has been inserted to grant credit of Advance Tax to the assessee. See section 219 of Income Tax Act, 1961

With Regards,

Kunal Agrawal

(Guest)

Originally posted by : nikita
	Originally posted by : Kunal Agrawal Hi! Current Tax Assets means the 'Tax payable as per Tax Laws for the reporting period'. tax payable as per tax law is cuerrent tax and not current tax assets.

Criteria for both taxes i.e. Current taxes & Deferred taxes has been given in AS-22

As fas as I think current tax is related to Advance Tax as seperate conditions has been given for setting off of DTA & DTL.

(Guest)

you may refer q.no. 1(a) of Audit paper of CA-Final (new course) may 2010 attempt

(Guest)

for your reference i have attached file here

Attached File : 46 20273paper3 finalnew suggans may2010 2.zip downloaded: 147 times

krishna Teja (CA Final) (85 Points)
Replied 02 February 2011

Originally posted by : nikita

Answers in Bold

1) As per AS-22 one of the condition for setting of DTA and DTL is enterprise has a legally enforceable right to set-off the recognized amounts.
In this context what do we mean by LEGAL ENFORCEABLE RIGHT ?????

Legal enforceable right, to be exercised, should be given by the applicable governing laws.In this context, the IT Act has give the right to set off the DTA & DTL provided, they pertain to the same head of income.

E.g: DTL arising from a transaction u/s 43B can be set off against a DTA from Depreciation but cannot be set off against DTA arising from capital gains as there is no legally enforceable right.

2)This accounting standard uses words current tax assets and current tax liability Does it mean by advance tax paid (current tax asset) and provision for tax (current tax liability) ????

YES.

3) Please clarify about reasonable certainty and virtual certainty ????

E.g:

Case 1 : The software industry recovered from the Recession. The future now is good. The company in discussion is recruiting employees in large numbers. Debtors are paying their dues. DTA of unabsorbed depreciation is 50 lakhs. The company has projected profit of 70 lakhs each year for 5 years

Case 2 : The software industry recovered from the Recession. The future now is good. The company in discussion is recruiting employees in large numbers. Debtors are paying their dues. DTA of unabsorbed depreciation is 50 lakhs. The company has projected profit of 70 lakhs each year for 5 years.ORDERS WORTH 1 CRORE ARE IN HAND on 31.03.20**

Case 1 is reasonable certainty & case 2 is virtual certainty. The difference between the two is presence of concrete evidence about the future.

Please reply only those who have proper knowledge of this accounting standard.

People here are to help others. No one wastes their precious time to entertain you. When some one tries to answer your query you need not be harsh to them. They are after all helping you.

Many of the members here are either qualified are to be qualified who, more or less, possess the same level of knowledge. If you want expert opinion, post your query in Expert section.

1 Like

(Guest)

No doubt bare AS-22 does not contain exact word 'Current Tax Assets' but same has been used in many books for referencing various pronouncements issued by ICAI.