Go AD-Free with CAclubindia Pro and Daily Mobile Updates. Subscribe Now!

Deferred Tax Asset and Liability

Vijayender Singh Chauhan (Asst. Manager) (27 Points)

18 June 2010

Im really confused ..I want to know whther we should add deferred tax liabilities in and less deferred tax assets from reserves and surpluses while calculating net worth. Generally I use the formula Net Worth= Eq. Sh. Cap.+Pref. Sh. Cap.+ R/S+Defered tax liability-Misc. Exps. not w/o-P/L dr. balance-Deferred tax asset

Please provide ur valuable inputs and throw some light on this..

Reply
Follow
Share

8 Replies

daya shankar singh (CA ,CS) (629 Points)
Replied 18 June 2010

You will calculate the Net worth by applying following formula:-

1) NW = Eqity +preference +Debenture + R& S- Misc exp, or

2) NW = Fixed assets + current assets - Outside liabilty

A learner (Corporate Accounts ) (345 Points)
Replied 18 June 2010

So, you mean DTA/DTL are not consideredwhile valuation of net worth..Is it so?

Shweta Garg (CA FINAL Executive(Payables)) (147 Points)
Replied 18 June 2010

Deffered tax asset and deffered tax liability, these are the accounts opened due to difference in the calculations between income tax act and companies act. these are not to be considered for calculation of net worth.

plz correct me if i m wrong

Vijayender Singh Chauhan (Asst. Manager) (27 Points)
Replied 19 June 2010

still am confused..

see my reason of including deferred tax liability in the reserves and surpluses is: D.T.L. arises when taxable profit<book profit. It implies we make an excess provision of taxes thn what is required under ther IT Act (coz we make provision of taxes on the basis of accounting profit). Since provison for taxes is an appropriation of profit so it reduces the actual profit. As a result reserves and surpluses decreases. But such D.T.L. is not required to be paid in future coz it is capable of reversal. So to compensate I add back D.T.L. in the reserves and surpluses. And though it is capable of reversal in the future, but we calculate Net Worth of a business at a point of time. So, to show its effect I added it back.

But I want to knw whether its a correct approach or not? suggest me the correct method....

akash behrani (Job) (107 Points)
Replied 19 June 2010

As per AS-22,Deferred Tax liability is NOT considered while calculating Net Worth, it will shown in Balance Sheet under a separate head "Deferred Tax Liablity " below Loan & Borrowings & above Current Liabilities & Provisions...