{"id":232,"date":"2020-07-11T06:48:51","date_gmt":"2020-07-11T06:48:51","guid":{"rendered":"http:\/\/www.rnm.in\/blog\/?p=232"},"modified":"2025-01-30T10:55:45","modified_gmt":"2025-01-30T10:55:45","slug":"application-of-paragraph-21-of-as-22","status":"publish","type":"post","link":"https:\/\/www.rnm.in\/blog\/application-of-paragraph-21-of-as-22\/","title":{"rendered":"Application of paragraph 21 of AS 22"},"content":{"rendered":"\n<p><strong>Fact of Case:<\/strong> <br>A company is a public limited company listed with recognised stock exchanges, engaged in manufacturing business. The company follows calendar year. In Union Budget for the financial year 2015-16 presented on 28th February 2015, the Government has revised the surcharge on income tax from 5% to 10%, resulting in increase of effective \u2018Corporate Tax\u2019 rate from 33.99% to 34.61%.<\/p>\n\n\n\n<p>Whether Rates announced by\nfinance bill is enacted or <em>substantively\nenacted<\/em><\/p>\n\n\n\n<p>Para 21 of AS 22:- <strong>\u201cdeferred tax should be measured using the\ntax rates and tax laws that have been <em>enacted\nor substantively enacted<\/em> by the balance sheet date.\u201d<\/strong><\/p>\n\n\n\n<p>\u201cDeferred tax assets and liabilities are usually measured using the tax rates and tax laws that have been enacted. However, certain announcements of tax rates and tax laws by the government may have the substantive effect of actual enactment. In these circumstances, deferred tax assets and liabilities are measured using such announced tax rate and tax laws.\u201d<\/p>\n\n\n\n<p>From the above, it is noted\nthat in case certain changes are proposed in tax rates, the term \u2018substantively\nenacted\u2019 should be construed as the tax rate that has the substantive effect of\nactual enactment. In other words, the process of enactment is substantively\ncomplete. The Committee is of the view that whether the process of enactment is\nsubstantively complete is a matter of judgement, which should be determined\nconsidering the facts and circumstances and various factors, such as, whether\nor not the remaining stages of the enactment process in past have affected the\noutcome (i.e., enactment of surcharge in the extant case) and are likely to do\nso in the present situation, viz., the process remaining to be executed for\nenactment is more of a procedural formality and is not expected to affect the\noutcome, etc. For example, in most cases, a tax rate for the purposes of AS 22\nis regarded as having been substantively enacted if the Bill containing such\nchanged tax rate has been passed by the LokSabha and is awaiting passage\nthrough the RajyaSabha and the President\u2019s assent. <\/p>\n\n\n\n<p>In this regards adequate\nand appropriate disclosures should be made regarding the tax rate adopted while\nrecognising deferred tax assets and liabilities and the basis for such adoption\nin the notes to accounts.<\/p>\n\n\n\n<p>For detail refer&nbsp; EAC opinion Query 17, Volume 35<\/p>\n\n\n\n<p><strong>Accounting for interest earned on fixed deposits made out of idle funds, interest earned on mobilization advance and other miscellaneous income during pre-operative period. <\/strong><\/p>\n\n\n\n<p><strong>Facts<\/strong> <br>A company say X ltd borrowed long term -loan of Rs. 100 Cr form ABC Bank Ltd for obtaining\/construction of qualifying assets. Out of 100 Cr company made advances to its vendors to the tune of 40 Cr, Rs. 10 Cr kept in bank account for its operation expenses and company made a Fixed deposit for Rs. 50 Cr for short \u2013term.  <\/p>\n\n\n\n<p><strong>Q. Interest earned by Company on temporary Fixed deposit \/Bank account&nbsp;to be shown as Other Income or to be deducted from Interest expenses of Borrowing Cost? <\/strong><\/p>\n\n\n\n<p><strong>Ans.<\/strong>As per Para 10 and 11 of AS 16,\nspecifically mentioned the treatment of interest earned on idle funds,If\nthe funds are borrowed specifically for the purpose of qualifying assets,\nactual interest paid on borrowed funds less any income arise on idle\ninvestment\/ funds&nbsp; to be capitalized. <\/p>\n\n\n\n<p>In view of\nabove, we are in the opinion that Interest earned on Fixed deposit made out of\nborrowed funds should be deducted from the interest cost and it should not be\ntreated as Other income. Interest cost to be capitalized after deducting the\ninterest income. <\/p>\n\n\n\n<p>For detail refer&nbsp;EAC opinion Query 5, Volume 35<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Fact of Case: A company is a public limited company listed with recognised stock exchanges, engaged in manufacturing business. The company follows calendar year. In Union Budget for the financial year 2015-16 presented on 28th February 2015, the Government has revised the surcharge on income tax from 5% to 10%, resulting in increase of effective \u2018Corporate Tax\u2019 rate from 33.99% [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":234,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[17,14],"tags":[81,25],"class_list":["post-232","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-assurance","category-general","tag-accounting-standard","tag-statutory-audit"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Corporate Tax Rate Increase for Public Limited Companies in India<\/title>\n<meta name=\"description\" content=\"This article discusses the implications of this change for public limited companies in India. 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