Spicer Ltd., a listed company, prepares interim financial reports at the end of each quarter. The following information is provided: (i) On 1st…

CA Final · Financial Reporting · PYQS · November 2024
Spicer Ltd., a listed company, prepares interim financial reports at the end of each quarter. The following information is provided: (i) On 1st April, 2023, Spicer Ltd. has brought forward losses of 620 lakh under Income Tax Act. No Deferred Tax Asset has been recognized by the management of the company for such losses in view of the uncertainty over company's ability to earn profits in the foreseeable future and set off these losses. (ii) Due to sudden change in government policies, the company's business turned around and it has reported quarterly earnings of 650 lakh and 360 lakh respectively for the first two quarters of financial year 2023-2024 and anticipates net earnings of 720 lakh in the coming half year ended March 2024 of which 160 lakh will be the loss in the quarter ended December 2023. (iii) The tax rate for the company is 25% with a 10% surcharge. You are required to calculate the amount of Tax Expenses to be reported for each quarter of the financial year 2023-2024.

Suggested Answer and Working Notes:

Computation of estimated total earnings for the year 2023-2024 Quarter Earnings before tax (in lakhs) 1 650 (actual) 2 360 (actual) 3 (160) (estimated) 4 720 + 160 = 880 (estimated) 1,730 (estimated) Tax rate for the company = 25 x 110% = 27.5% Computation of Average Annual Effective Tax Rate The estimated payment of the annual tax on earnings for the current year: = (1,730-620) x 27.5% = 305.25 lakhs. As per Ind AS 34, income tax expense is recognised in each interim period based on the best estimate of the weighted average annual income-tax rate expected for the full financial year. Thus, average annual effective tax rate = (305.25 / 1,730) × 100 = 17.645% (approx.) Tax expense to be shown in each quarter. Quarter Earnings before tax (in lakhs) Tax expense @ 17.645% 1 650 (actual) 114.69 2 360 (actual) 63.52 3 (160) (estimated) (28.23) 4 720 + 160 = 880 (estimated) 155.27 1,730 (estimated) 305.25

Topics: Ind AS 34

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