Page 17 - 2. COMPILER QB - INDAS 12

QUESTIONS FROM PAST EXAM PAPERS

No Questions Asked in May 18, Nov 18, May 19 & Nov. 19 specifically from IndAS 12

Q12. (Nov. 20) - Similar to Q.2.(i) & (iv)

(i) Parent Limited, prepares consolidated financial statements of the group on 31St March every year. During
st
the year ended March 31 , 2020, the following events affected the tax position of the group: S Limited, a
wholly owned subsidiary of Parent Limited, incurred a loss of ₹ 20,00,000 which is adjustable from future
taxable profits of the company for tax purposes. S Limited is unable to utilize this loss against previous

tax liabilities. The Income-Tax Act does not allow S Limited to transfer the tax loss to other group
companies. However, it allows S Limited to carry forward the loss and utilize it against the company's
future taxable profits. The directors of Parent Limited estimate that S Limited will not make any taxable
profits in the foreseeable future
(ii) On April 1", 2019, Parent Limited borrowed ₹ 50,00,000. The cost incurred by Parent Limited for arranging
the borrowing was ₹ 1,00,000 on the said date and this expenditure is qualified for deduction under the

Income Tax Act for the accounting year 2019-20. The loan was given for a three-year period. As per
agreement, no principal or interest was payable on the loan during the tenure of loan but the amount
st
repayable on 31 , March 2022 will be by way of a bullet payment of ₹ 65,21,900. As per Parent Limited,
this equates to an effective annual interest rate of 10% on loan. As per the Income-tax Act, a further
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expense of ₹ 15,21,900 will be claimable from taxable income till the loan is repaid on March 31 , 2022

The rate of corporate income tax to be assumed @ 20%.
Explain and show how each of these events would affect the deferred tax assets / liabilities in the
consolidated balance sheet of Parent Limited as at March 31", 2020 as per applicable Ind AS.
You are also required to examine whether the effective rate of interest arrived at by Parent Limited for the

loan of ₹ 50,00,00 is in accordance with applicable Ind AS or not?

SOLUTION

i) The tax loss creates a potential deferred tax asset for the group since its carrying value is nil and its tax
base is Rs 20,00,000.
However, no deferred tax asset can be recognised because there is no prospect of being able to reduce
tax liabilities in the foreseeable future as no taxable profits are anticipated.
ii) The carrying value of the loan at 31 March 2020 is Rs 53,90,000 (Rs 50,00,000 – Rs 1,00,000 + (Rs
49,00,000 x 10%)).
The tax base of the loan is Rs 50,00,000.

This creates a deductible temporary difference of Rs 3,90,000 (Rs 53,90,000 – Rs 50,00,000) and a
potential deferred tax asset of Rs 78,000 (Rs 3,90,000 x 20%).
If there are prospects of availability of taxable profits in future, deferred tax asset can be recognised.
Amortization Table for verification of effective rate of interest
Year Opening balance (Rs) Interest @ 10% Closing balance
(A) (Rs) (B) (Rs) (A) + (B)

1 (50,00,000 – 1,00,000) 49,00,000 4,90,000 53,90,000
2 53,90,000 5,39,000 59,29,000
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