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Accounting impact of no depreciation as per tax on goodwill as per AS. (DEFFERED TAX)

Kritika (CA) (26 Points)

06 October 2021

As per recent circular no depreciation is allowed as per I.T. Act. What will be its impact on deffered tax acounting as per accounting standard.

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 06 October 2021

Depreciation is allowed as deduction under section 32 of Income Tax Act, 1961. In computation of taxable income, the depreciation rate as per income tax act will be allowed as deduction while depreciation as per book profit is added back. Depreciation rate chart for FY 2020-21 / AY 2021-22 as produced in the table below. depreciation rates – income tax.

The balance sheet depreciation is going to take place. Only revalued assets are more prone to gross of deferred taxes contribution. In this scenarios, it is not a concern because, there will be differences in after tax profits. Eg. if company policy is straight line then the depreciation 10000 INR is lower than WDV 20000 INR amount in the initial years. Hence, here there is no negative impact. While this is this, the asset will be measured as per AS carrying amount- depreciation.

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 06 October 2021

AS 12 does have deferred taxes for depreciable assets as well. So if the tax base against carrying amount will give you differed tax liability. Since you are aware that taxable income= PBT, add back company depreciation and subtract tax depreciation. Then apply tax rate to get the current tax liability. In the financial statements, PBT will be same as per AS standard, apply current tax and differed taxes to get PAT. Hope I got this right.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 06 October 2021

LOL ok, sry I was carried away. I did not see Goodwill. goodwill is not a qualifying asset for the purposes of corporation tax. Plus goodwill is impairment tested and written off to nil and not amortised.