CAF-05 Solution Test-8
Answer-1
Uchhali Limited
Deferred tax liability/asset
As on 31 December 2022
Rs. in million
Carrying Tax Base Difference Tax Tax
amount T.T.D/D.T.D rate D.T.L/D.T.A
Investment Property 420 450 30 DTD 30% 9 D.T.A
Inventory (Imported) 264(W-1) 304(W-2) 40 DTD 30% 12 D.T.A
Inventory (Others) 576(bal.) 576 - 30% -
Total Inventory 840 880(bal.)
Interest receivable 65 0 65 TTD 20% 13 D.T.L
Penalty 42 42 - 30% -
Other accrued expenses 190(bal.) - 190 DTD 30% 57 D.T.A
Total accrued expenses 232 42
Unused losses 165 D.T.A
(550 x 30%)
230 D.T.A
(W-1) Accounting rules (Inventory)
Unsold Inventory 660 x 40% 264
(W-2) Tax rules (Inventory)
Unsold Inventory (264 + 100 x 40%) 304
Answer-2
(i) The carrying value of the factory building is Rs. 1,260 million while its tax base is
Rs. 1,080 million [1,200 – 10% of 1,200] as at 31 December 2022.
As the carrying amount of asset exceeds the tax base so there will be a taxable temporary
difference of Rs. 180 million (1260 – 1,080) on which deferred tax liability of Rs. 63 million (180
x 35%) shall be recognized.
The effect arising due to the difference in depreciation i.e. Rs. 14 million would be taken to profit
or loss. While the remaining effect of liability arising due to revaluation adjustment i.e. Rs. 49
million would be taken to other comprehensive income.
(W-1) Calculation of revaluation surplus and depreciation on Plant
Plant Rev. SOCI Tax on Net
Surplus (P/L) Surplus Surplus
Date Description (35%) (65%)
-----------Rs. in million-----------
Cost 1,200
Depreciation (80)
1,120
Revaluation (Bal.) 140 140 - 49 91
Revalued amount 1,260 140 - 49 91
Adnan Rauf, FCA Page 1
CAF-05 Solution Test-8
Calculation of deferred tax
Carrying Tax Difference Tax
amount base
Building 1,260 1,080 180 T.T.D 63 D.T.L
(1,200 – 10% of 1,200)
(W-2)
Dr. Deferred tax liability Cr.
b/d 0
Deferred tax expense (bal.) 14
c/d 63 Asset 49
(ii) The carrying value of development cost is Nil (because it is expensed out) while its tax base is
Rs. 18 million [20 – 10% of 20] as at 31 December 2022.
As the carrying amount of asset is less than the tax base of asset so there will be a deductible
temporary difference of Rs. 18 million on which deferred tax asset / income of Rs. 6.3 million
[18x35%] shall be recognised.
Since the development cost is taken to profit or loss, the corresponding effect should also be
credited to profit or loss.
(iii) At 31 December 2022, the carrying value of the government grant is Rs. 8 million
[12 - 4(12/3)] while its tax base is the same as carrying value as it is exempt. Therefore, no
deferred tax shall arise.
(iv) The tax loss of Rs. 260 million for the year 2022 shall result in deferred tax asset of
Rs. 91 million [260 x 35%]. The deferred tax asset shall be recognised to the extent that TL is
probable that taxable profit will be available against which unused tax losses can be utilized. If
TL will earn sufficient profits within next six years then deferred tax asset should be recognized
and corresponding effect should be credited to statement of profit or loss. However, if TL is not
expected to earn sufficient profit in future than deferred tax asset would not be recognized and
will be reassessed for recognition at each year end.
Adnan Rauf, FCA Page 2
