Accounting Standards 1-29 - Seth & Associates

of the asset for tax purposes is Rs. 800 lakhs. Impairment losses are not allowable
as deduction for tax purposes. The effect of the impairment loss is as follows:
Impairment Loss recognised in the statement of profit and loss 350
Impairment Loss allowed for tax purposes -
Timing Difference 350
Tax Effect of the above timing difference at 30% (deferred tax
asset)
Less: Deferred tax liability due to difference in depreciation for
accounting purposes and tax purposes [(1,000 - 800) x 30%]
Deferred tax asset 45
Amount in Rs.
lakhs
A34. In accordance with AS 22, Accounting for Taxes on Income, the enterprise
recognises the deferred tax asset subject to the consideration of prudence as set out
in AS 22.
Example 4 - Reversal of an Impairment Loss
Use the data for enterprise T as presented in Example 2, with supplementary
information as provided in this example. In this example, tax effects are ignored.
Background
A35. In 20X6, the government is still in office in Country A, but the business situation
is improving. The effects of the export laws on T’s production are proving to be less
drastic than initially expected by management. As a result, management estimates
that production will increase by 30%. This favourable change requires T to reestimate
the recoverable amount of the net assets of the Country A operations (see
paragraphs 94-95 of this Statement). The cash-generating unit for the net assets of
the Country A operations is still the Country A operations.
A36. Calculations similar to those in Example 2 show that the recoverable amount of
the Country A cash-generating unit is now Rs. 1,710 lakhs.
Reversal of Impairment Loss
A37. T compares the recoverable amount and the net carrying amount of the
Country A cash-generating unit.
Schedule 1. Calculation of the carrying amount of the Country A cash-generating
unit at the end of 20X6 (Amount in Rs. lakhs)
End of 20X4 (Example 2)
105
60
Goodwill Identifiable assets Total
Historical cost 1,000 2,000 3,000