Page 56 - 23. COMPILER QB - IND AS 109_32

Parent Limited, this equates to an effective annual interest rate of 10% on loan. As per the Income-tax
Act, a further expense of Rs. 15,21,900 will be claimable from taxable income till the loan is repaid on 31
March 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 31 March 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 Rs. 50,00,000 is in accordance with applicable Ind AS or not?
*
PS: Read ‘vested’ as ‘exercised’.
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.

Amortisation Table for verification of effective rate of interest
Year Opening balance (Rs.) (A) Interest @ Closing balance
10% (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
3 59,29,000 5,92,900 65,21,900

Since the closing balance calculated as per the above table on the basis of 10% matches with the bullet
payment of Rs. 65,21,900, it assures that 10% rate of interest taken as effective rate of interest is correct
and is in accordance with Ind AS 109. It considers the impact of cost of borrowing adjusted from the loan
amount at initial recognition.

(only for understanding)

Year Carrying Amount Tax Base Temporary difference DTA / DTL

1 53,90,000 50,00,000 3,90,000 DTA

2 59,29,000 50,00,000 9,29,000 DTA

3 65,21,900 50,00,000 9,29,000 reversal of DTA

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