Teaching Material

Dr. Paritosh Basu 1

Deferred Tax and FS for Combined Economic Entity

 Deferred Tax – Concept Disucussions

 Deferred Tax – Analysis and Class Work
 Consolidated Financial Statement
 Case Study from Published Annual Report

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Definitions for Deferred Tax (Ind AS 12)
 Current Tax: The amount of income tax determined to be payable on the
taxable income for a given accounting period
 Deferred Tax: The tax effect of timing difference
 Timing Difference: The difference between taxable income and accounting
income for a period that originate in one period and capable of reversal in
subsequent period
 Permanent Difference: The difference between taxable income and
accounting income for a period that originate in one period and do not
reverse subsequently
 Tax Costs for an accounting period: Equal to Current Tax plus Deferred Tax
 Deferred Tax Liability - Recognised for all the timing differences
 Deferred Tax Asset - Should be recognised only to the extent there are
reasonable certainty supported by convincing evidences that there will
be sufficient future taxable income to recover the Asset
 Deferred Tax Asset = Tax Income for which PAT increases
 Deferred Tax Liability = Tax Expense for which PAT reduces

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Deferred Tax … 2
General Rules for Deferred Tax Accounting due to Timing Difference
Position of Accounting Income Analysis of Effect Action for Def. Tax Asset or
Vs. Tax Income Liab. Provisioning

1. Accounting Income is in excess Accounting Income - Tax is Create Def. Tax Liability by
of Tax Income more charging Def. Tax Expenses in
Taxable Income - Tax is less Statement of P&L

2. Accounting Income is less than Accounting Income - Tax is Create Def. Tax Asset* by
Tax Income less taking credit to P&L for Def.
Taxable Income - Tax is more Tax Income

3. There is Loss as per Accounts Accounting Loss - No Tax Create Def. Tax Asset* by
but Income as per Tax Laws Taxable Income - Tax is there taking credit to P&L for Def.
Tax Income

4. There is Profit as per Accounts Accounting Profit - Tax is Create Def. Tax Liability by
but Loss as per Tax Laws. there charging Def. Tax Expenses in
Tax Loss - No Tax Statement of P&L

Note: Current Tax is to be calculated as per applicable Tax Laws.

* Deferred Tax Asset can be created only if there is virtual certainty of adjusting against Current
Tax Liability on income in future, duly evidenced by acceptable documents. 4
Deferred Tax – Case Discussion
(Discussed in class)

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Consolidated Financial Statement (Ind AS 27)
 Presentation and Objective
 Consolidated and presented by the Parent or Holding Company
 Intended to present financial results and state of affairs of the combined
economic entity, i. e., Parent and all its Subsidiaries
 The combined economic group is taken as if one single entity
 Reveals combined Profit / Loss and Assets and Liabilities with detailed
explanatory notes for all domestic and overseas subsidiaries
 All Inter-group Assets, Liabilities, incomes and expenses are eliminated
 All unrealised profits and losses are eliminated
 Share of equity owners outside the group disclosed as Minority Interest
 Consolidation of FSs of Parent and Subsidiaries
 A Subsidiary is an enterprise that is controlled by another enterprise
 Ownership or control of Parent is exercised through direct or indirect
 Holding of more than 50% voting power of an enterprise
 Controlling composition of Board of Directors or the governing body
 A Parent is an entity that has one or more subsidiaries 6
Consolidation Procedure
 FSs of Parent and Subsidiaries are added on a line by line basis by
taking the following steps
 Uniform Accounting Policy is a must, setting right variations if any
 If not practicable to use similar accounting policies, facts to be disclosed
with reference to proportion of items
 Parent’s Investments’ and Equity Capital of Subsidiaries are eliminated
 Difference between parent’s Investment costs and Subsidiaries equity
share value is disclosed
 If excess, as Goodwill and
 If less, as Capital Reserve
 The combined economic group is taken as if one single entity
 Net Worth / Net Assets of combined FS is disclosed after deducting
Minority Interest
 PAT is allocated to Holding Co. and Minority in ratio of their share holding
 Separate FSs of each entity should be of the same reporting date, else
significant events during difference of period should be adjusted and
disclosed as notes 7
Consolidation Procedure … 2
 FSs of Parent and Subsidiaries are added on a line by line basis by
taking the following steps
 Minority Interest in the Net Worth / Assets of Cons. FS consists of
 Equity attributable to the Minorities on the first date of investment by
the Parent
 Movement in Equity, Reserves and Surplus subsequent to that date
 Minority Interest and Tax Expenses are rolled up from the Separate FS of
each Subsidiary and Parent
 Disclosures in Cons. FSs in addition to BS SP&L, CF and Notes
 Subsidiaries: (1) Names, (2) Country of Incorporation / residence,
(3) Proportion of ownership Interest, and if different, proportion of
voting power
 Effect of acquisition and disposal of subsidiaries on the financial
position at the reporting period and corresponding amounts from
previous period under major heads
Note: Ind AS 110 has allowed exemption for disclosure of certain
information in Cons. FS which appear in stand alone FSs of
Parents and Subsidiareis 8
 Review of Published
Consolidated Financial Statements
of certain Indian Listed Companies

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Thank You and Happy Learning

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