Page 3 - 22. COMPILER QB - INDAS 34

Note - tax expense for the year will be zero. But this needs to be accounted for and presented properly.

Q2 (Nov. 20 & Nov. 21)

st
An entity‖s accounting year ends on 31st December, but its tax year ends on 31 March. The entity publishes

st
an interim financial report for each quarter of the year ended 31 December, 2019. The entity‖s profit before
st
tax is steady at Rs10,000 each quarter, and the estimated effective tax rate is 25% for the year ended 31

st
March, 2019 and 30% for the year ended 31 March, 2020.
How the related tax charge would be calculated for the year 2019 and its quarters.
SOLUTION

Table showing computation of tax charge:
Quarter Quarter Quarter ending Quarter ending st
Year ending 31
th
st
ending31 Mar ending30 Ju th st
30 September, 31 December,
December, 2019
ch, 2019 ne, 2019
2019 2019
Rs Rs Rs Rs Rs
Profit before tax 10,000 10,000 10,000 10,000 40,000
Tax charge (2,500) (3,000) (3,000) (3,000) (11,500)

7,500 7,000 7,000 7,000 28,500
Tax Rate 25% 30% 30% 30%

Note: As per Ind AS 34, since an entity‖s accounting year is not the same as the tax year, more than one
tax rate might apply during the accounting year. Accordingly, the entity should apply the effective tax rate

for each interim period to the pre-tax result for that period.

Q3 (Nov. 22)

PQR Ltd. is preparing its interim financial statements for quarter 3 of the year. How the following

transactions and events should be dealt with while preparing its interim financials:
(i) It makes employer contributions to government-sponsored insurance funds that are assessed on an annual
basis. During Quarter 1 and Quarter 2 larger amount of payments for this contribution were made, while

during the Quarter 3 minor payments were made (since contribution is made upto a certain maximum
level of earnings per employee and hence for higher income employees, the maximum income reaches
before year end).
(ii) The entity intends to incur major repair and renovation expense for the office building. For this purpose, it
has started seeking quotations from vendors. It also has tentatively identified a vendor and expected costs
that will be incurred for this work.

(iii) The company has a practice of declaring bonus of 10% of its annual operating profits every year. It has a
history of doing so.
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