Page 6 - 22. COMPILER QB - INDAS 34

Q5 (OCTOBER 2021 - 6 Marks)

Narayan Ltd. provides you the following information and asks you to calculate the tax expense for each

quarter, assuming that there is no difference between the estimated taxable income and the estimated
accounting income:

Estimated Gross Annual Income is Rs. 33,00,000
(inclusive of Estimated Capital Gains of Rs. 8,00,000)

Estimated Income -
Quarter I is Rs. 7,00,000,

Quarter II is Rs. 8,00,000,
Quarter III (including Estimated Capital Gains of Rs. 8,00,000) is Rs. 12,00,000 and

Quarter IV is Rs. 6,00,000.

Tax Rates:
On Capital Gains – 12%
On Other Incomes – First Rs. 5,00,000 - 30%; Balance Income – 40%

SOLUTION

As per Ind AS 34 ―Interim Financial Reporting‖, income tax expense is recognised in each interim period based

on the best estimate of the weighted average annual income tax rate expected for the full financial year.
If different income tax rates apply to different categories of income (such as capital gains or income earned

in particular industries) to the extent practicable, a separate rate is applied to each individual category of
interim period pre-tax income.

Rs.
Estimated annual income exclusive of estimated capital gain

(33,00,000 – 8,00,000) (A) 25,00,000
Tax expense on other income:
30% on Rs. 5,00,000 1,50,000
40% on remaining Rs. 20,00,000 8,00,000

(B) 9,50,000
Weighted average annual income tax rate = B = 9,50,000 = 38%

A 25,00,000
Tax expense to be recognised in each of the quarterly reports
Rs.

Quarter I - Rs. 7,00,000 x 38% 2,66,000
Quarter II - Rs. 8,00,000 x 38% 3,04,000

Quarter III - Rs. (12,00,000 - 8,00,000) x 38% 1,52,000
Rs. 8,00,000 x 12% 96,000 2,48,000
Quarter IV - Rs. 6,00,000 x 38% 2,28,000

10,46,000

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