Dear Experts and friends, Please explain the term 'reverse' used in AS22.
Reversal of timing differences...
Timing difference originate during the tax holiday period and reversed during the tax holiday period.... What is this?
6 Replies
praveen
(Chartered Accountant)
(6971 Points)
Replied 25 August 2011
timing differences have will be reversed at some time later. I think that is the meaning of the words there.
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sri rama krishna mallela
(Junior Manager F&A)
(204 Points)
Replied 25 August 2011
I want to explain this with an example
company X is in tax holiday for 4 years. And the timing difference is as follows
depreciation as per Income tax
Year amount
1 500
2 450
3 400
4 300
5 200
depreciation as per books
Year Amount
1 400
2 400
3 400
4 400
5 400
So the timing deference is as follws
Year timing deference
1 100
2 50
3 0
4 (100)
5 (200)
so in this case the timing deference reversed with in tax holiday is 100 in year Four. and the excess fifty [ i.e. 100 in year 1 + 50 in Year 2 - 100 in Year 4] is allowed as timing difference in fifth year in which year the is no tax holiday. And what ever be the reversed timing deference during the period of tax holiday is not elegible for rec as timing deference.
Hope it is clear if not u r welcome for further clarity any thing u want.
CA MANIK KUMAR
(Manager )
(710 Points)
Replied 25 August 2011
IF DURING THE TAX HOLIDAY PERIOD THEIR IS ANY REVERSAL OF EITHER DTA OR DTL SHOUID NOT BE CONSIDRED AND REVERSAL SHOUID BE ADUSTED USING FIFO METHOD.
CA MANIK KUMAR
(Manager )
(710 Points)
Replied 25 August 2011
IF DURING THE TAX HOLIDAY PERIOD THEIR IS ANY REVERSAL OF EITHER DTA OR DTL SHOUID NOT BE CONSIDRED AND REVERSAL SHOUID BE ADUSTED USING FIFO METHOD.
Tom S Peter
(Article)
(148 Points)
Replied 26 August 2011
Mr.Rama Krishna> I thank u personally for your explanation.
In your eg: it was 100 DTL for Y1,50 DTL for Y2 and 100 DTA for Y4.
So is it like this that reversal means DTA turning in to DTL or vice versa.
or
An asset gradually becoming NIL value,which was initially DTA then turning in to DTL and finally nothing.
Pls explain...
viral sheth
(CA)
(57 Points)
Replied 27 August 2011
deferred taxes in respect of timing difference which originate during the tax holiday period and reverse during the tax holiday period should not be recognised to the extent of gross total income that is subject to deduction.
moreover as per AS 22 DTA AND DTL can be set off provided the two conditions are satisfied
1. the enterprise has the enforceable right to set off asset and liability relating to current tax
2. dta and dtl should relate to the same governing laws
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