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Union of India - Section
Section 51A in The Companies (Indian Accounting Standards) Rules, 2015
51A. In some jurisdictions, the manner in which an entity recovers (settles) the carrying amount of an asset (liability) may affect either or both of:
| Example A |
| An item of property,plant and equipment has a carrying amount of Rs. 100 and a taxbase of Rs. 60. A tax rate of 20% would apply if the item weresold and a tax rate of 30% would apply to other income.The entity recognises a deferred taxliability of Rs. 8 (Rs. 40 at 20%) if it expects to sell the itemwithout further use and a deferred tax liability of Rs. 12 (Rs.40 at 30%) if it expects to retain the item and recover itscarrying amount through use. |
| Example B | |||
| An item of property,plant and equipment with a cost of Rs. 100 and a carrying amountof Rs. 80 is revalued to Rs. 150. No equivalent adjustment ismade for tax purposes. Cumulative depreciation for tax purposesis Rs. 30 and the tax rate is 30%. If the item is sold for morethan cost, the cumulative tax depreciation of Rs. 30. will beincluded in taxable income but sale proceeds in excess of costwill not be taxable.The tax base ofthe item is Rs. 70 and there is a taxable temporary difference ofRs. 80. If the entity expects to recover the carrying amount byusing the item, it must generate taxable income of Rs. 150, butwill only be able to deduct depreciation of Rs. 70. On thisbasis, there is a deferred tax liability of Rs. 24 (Rs. 80 at30%). If the entity expects to recover the carrying amount byselling the item immediately for proceeds of Rs. 150, thedeferred tax liability is computed as follows:{| | |||
| Taxable Temporary Difference | Tax Rate | Deferred Tax Liability | |
| (Amount in Rs..) | (Amount in Rs..) | ||
| Cumulative tax depreciation | 30 | 30% | 9 |
| Proceeds in excess of cost | 50 | nil | - |
| Total | 80 | 9 |
| Example C |
| The facts are as inexample B, except that if the item is sold for more than cost,the cumulative tax depreciation will be included in taxableincome (taxed at 30%) and the sale proceeds will be taxed at 40%,after deducting an inflation-adjusted cost of Rs.. 110.If the entityexpects to recover the carrying amount by using the item , itmust generate taxable income of Rs.. 150, but will only be ableto deduct depreciation of Rs.. 70. On this basis, the tax base isRs.. 70, there is a taxable temporary difference of Rs.. 80 andthere is a deferred tax liability of Rs.. 24 (Rs.. 80 at 30%), asin example B.If the entityexpects to recover the carrying amount by selling the itemimmediately for proceeds of Rs.. 150, the entity will be able todeduct the indexed cost of Rs.. 110. The net proceeds of Rs.. 40will be taxed at 40%. In addition, the cumulative taxdepreciation of Rs.. 30 will be included in taxable income andtaxed at 30%. On this basis, the tax base is Rs.. 80 (Rs.. 110less Rs.. 30), there is a taxable temporary difference of Rs.. 70and there is a deferred tax liability of Rs.. 25 (Rs.. 40 at 40%plus Rs.. 30 at 30%). If the tax base is not immediately apparentin this example, it may be helpful to consider the fundamentalprinciple set out in paragraph 10.(note: in accordance with paragraph 61A, theadditional deferred tax that arises on the revaluation isrecognized in other comprehensive income) |