Saturday 30 March 2013

AS-22 "DEFFERED TAX EFFECT IN CASE OF CHANGES IN TAX RATE & IN CASE IF BUDGET IS POSTPONE BEYOND 31ST MARCH"



DEFFERED TAX EFFECT IN CASE OF CHANGES IN TAX RATE : 
While current taxes will be created at current tax rate and deffered tax effect should be given at future tax rate announced in the budget. This is because the Deffered Tax Asset will realize OR Deffered Tax Liability  will settled in the future and the benefit OR obligation will be at future tax rate, therefore no point in creating Deffered Tax Asset and Deffered Tax Liability at current tax rate.

If the future tax rate is different compared to the current tax rate, than even after giving deffered tax effect, shareholder’s readability for matching concept will not be met. Therefore, additional explanatory disclosure must be given to enable user readability.


DEFFERED TAX EFFECT IN CASE IF BUDGET IS POSTPONE BEYOND 31ST MARCH :
LOGICAL REASONING: The Company must create deffered tax effect only at old tax rate and ignore the new rates in the budget. The “ FRAMEWORK FOR PREPARATION AND PRESENTATION OF FINANCIAL STATEMENT” specifies that one of the important objectives of the Accounting Standards is to enable “COMPARABILITY” to the users of Financial Statements.

TECHINAL RESAONING: This issue comes under AS 4 “Events Occurring After The Balance Sheet Date”. The Budget  is a event occurring after the balance sheet date, but it does not substantiate a condition existing as on the balance sheet date i.e. 31st March. Therefore, it is an non adjusting event and deffered tax effect will be at old rate.

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