Dear Members
Can any one Tell me what is deffered Tax. Where it is Applicable. What is its Treatment?
What is Impairement of Asset?
CA.Rajesh Verma
(vermaraajesh39@yahoo.co.in (Dubai))
(97 Points)
Replied 24 April 2009
Note: All explanation is given in layman langauage and meant only for knowlege gain purpose. For tech. study pls refer AS-22.
1.Deff Tax applicability:
To all person- Co, a small bussinessmen, partnership,etc...whosoever is required to pay tax.
2.Derr Tax ??:
In layman language, you deffer tax (or pay now) in future due to difference in treatment of expenses and income as per income tax act and accouting entries.
e.g unless you pay TDS-you have to pay tax on related expenses and as you pay Tds you can claim such exp. as deduction for payment of income tax. All this creats diff. in treatment of an exp in Accounts and in payment of Tax.
This Deff Tax has two aspects: a. Liability b. Asset
Firstly b.) it means you paid tax now to govt on an exp (disallowed exp) /income(as per income tax rules) but you need not to pay (as per accounts)
eg you paid tax on Rent in respect of which no TDS hasbeen deducted or paid.(as per IT rules). But you need not to pay because such RENT is your business exp which is required to booked as per accounts.
Because you paid Tax on Rent ( say: 10000*20%=2000/-).This 2000/- becomes your Deff. Tax Asset.
As soon as you pay TDS, this rent will be allowed as exp. in next time payment of tax (as per IT rules) there by you will pay less tax ( kyonki pahle tax de diya hai) and therefore you will reverse such Deff Asset proportionately . As thisRent relates to previous yr you will not show this exp in this yr (as per accounts) ( kyonki pahle tax account kar liya hai).
eg you paid TDS on 8000 out of 10000 so now you will reverse Deff tax by 8000*20%=1600/-. and remaing 400 will be reversed as soon as you will pay remain tax.
Entry : Deff Tax creation on non payment of Tds:
Deff Tax asset DR (asset Item)2000/-
To Tax exp ( P& L item)2000/-
on Payment of TDS at finalisation of accounts:
Tax exp dr 1600/-
Deff tax asst 1600/-
Now Liability:
Now ulta socho and karo. Hint: you dont paid tax (as per IT act) now but required to pay in future. ie it is your liab. to pay tax in future instead of now.)
e.g IT allow you 20% dep (high exp) instead of 10%( as per your accouning policy). Note % are not so relevent consider absolute figure. if dep (IT) is higher then you will pay less right now but need to pay high when dep (IT) become low as compared to your accouted dep.
I think all this is sufficient.
Impairment of Assets:
Sidha sa y matlab hai ki jab koi asset (aksar FA) utna kaam nahi kar paati jitna karna chahiye or usme sudhar ki dur dur tak koi umid nahi nazar aati. In other words, When Actual worth of an asset becomes low then what is actually represetend in Accounts and there is no expectation that it wil generate profit by repair and maint. etc.
eg Accounted (after dep) for 1000. Actaul OUKAT (as per technical valuations)of asset: 400. Now Impariment loss is 600 so reduce your asset value by 600/-.
Regards,
CA. Rajesh Verma S/o Sh. Bakshi Ram Verma
Landmark Group,
Dubai, UAE
+971509166947
Landmark Judgments: Important Provisions of the EPF & ESI Act interpreted by the Honorable Supreme Court of India
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