Corporate Financial Statements (COM3MN203) — Module 2: Accounting Standards for Liabilities & Fiscal Obligations

• MODULE II: ACCOUNTING STANDARDS FOR LIABILITIES & FISCAL OBLIGATIONS (IND AS 23 & IND AS 12)
• Curriculum Alignment: Calicut University B.Com (Honours) | Semester III Minor Course: COM3MN203 Corporate Financial Statements | Module II: Accounting Standards for Liabilities (11 Lecture Hours)

1. Foundational: Architecture of Liability & Fiscal Standards Under the converged Indian Accounting Standards (Ind AS) framework, liabilities represent present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Financial reporting of corporate liabilities requires rigorous technical precision, particularly regarding: (1) The financing costs incurred during long-term capital formation (governed by Ind AS 23: Borrowing Costs); and (2) The fiscal tax obligations arising from current operations and future tax effects of carrying amounts recognized in the balance sheet (governed by Ind AS 12: Income Taxes).

Both standards represent a radical departure from traditional rule-based Indian GAAP (AS 16 and AS 22). Ind AS 23 mandates the capitalization of borrowing costs directly attributable to qualifying assets, eliminating past options to expense financing charges. Meanwhile, Ind AS 12 introduces the comprehensive Balance Sheet Liability Approach, replacing the outdated "timing difference" concept with the rigorous "temporary difference" methodology grounded in carrying amounts and tax bases.

OVERVIEW OF CORE STANDARDS IN MODULE II Module Structure Ind AS 23: Borrowing Costs

• Core Mandate: Borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset form part of the cost of that asset. All other borrowing costs are recognized as an expense in profit or loss.
• Key Levers: Qualifying assets, specific vs. general borrowings, capitalization rate, commencement, suspension, and cessation rules, foreign exchange adjustments.

Ind AS 12: Income Taxes

• Core Mandate: Accounting for current and future tax consequences of: (a) Future recovery/settlement of carrying amount of assets/liabilities; and (b) Transactions recognized in financial statements.
• Key Levers: Current tax liabilities/assets, Tax Base determination, Taxable Temporary Differences (DTL), Deductible Temporary Differences (DTA), OCI tax allocation.

2. Ind AS 23: Borrowing Costs Ind AS 23 prescribes the accounting treatment for borrowing costs. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. The fundamental principle is that borrowing costs directly attributable to the acquisition, construction, or production of an asset that takes a substantial period of time to get ready for its intended use or sale (a qualifying asset) are capitalized as part of the initial cost of that asset.

SCOPE & EXCLUSIONS UNDER IND AS 23 Ind AS 23 must be applied by all entities in accounting for borrowing costs. However, it does not deal with the actual or imputed cost of equity, including preferred capital not classified as a liability under Ind AS 32. Furthermore, an entity is not required to apply the standard to borrowing costs directly attributable to the acquisition, construction, or production of: (a) A qualifying asset measured at fair value (e.g., biological assets under Ind AS 41); or (b) Inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis over a short period.

Anatomy of Borrowing Costs Borrowing costs may include:

• Interest Expense: Calculated using the effective interest method as described in Ind AS 109 (Financial Instruments), including amortization of discounts, premiums, or issue costs on debt securities.
• Finance Charges on Leases: Interest expense in respect of lease liabilities recognized in accordance with Ind AS 116 (Leases).

Exchange Differences from Foreign Currency Borrowings: Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

FOREIGN CURRENCY BORROWING COST ADJUSTMENT MECHANISM Technical Rule When an enterprise borrows in a foreign currency at lower nominal interest rates, exchange rate depreciation increases the ultimate repayment liability. Ind AS 23 treats exchange losses as an adjustment to borrowing cost up to the equivalent domestic borrowing rate:

Capitalizable Exchange Loss = MINIMUM { Actual Foreign Exchange Loss, (Equivalent Domestic Interest − Actual Foreign Interest Paid) } Any remaining exchange loss exceeding this interest differential is not a borrowing cost; it must be recognized as a foreign exchange loss in Profit or Loss under Ind AS 21.

Definition and Identification of a "Qualifying Asset" A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

Category Qualifying Assets (Eligible for Capitalization) Non-Qualifying Assets (Capitalization Prohibited) Tangible Infrastructure Manufacturing plants, power generation plants, telecommunication transmission towers, toll roads, bridges, and customized commercial real estate projects requiring 12 to 36 months of construction.

Readily available plant, machinery, or office vehicles acquired in a condition ready for immediate operational deployment upon delivery.

Inventories & Produce Inventories that require a prolonged aging or maturation period to become marketable (e.g., maturing single malt whiskey, timber aging for specialty musical instruments, cheese curing).

Inventories routinely manufactured in high volumes on a repetitive daily or weekly basis (automobiles, consumer electronics, textiles, packaged foods).

Intangible Assets Internally developed enterprise software, pharmaceutical drug molecules, or patents requiring multi-year clinical trials and development phases.

Off-the-shelf commercial software licenses, acquired patents ready for immediate utilization, financial investments (shares, debentures).

• Measurement & Capitalization Rules: Specific vs. General Borrowings

1. Specific: Borrowings

• Definition: Funds borrowed specifically for the purpose of obtaining a designated qualifying asset.
• Capitalization Formula: Capitalized Cost = Actual Borrowing Costs Incurred during Period − Investment Income on Temporary Reinvestment of Unused Loan Tranches
• Operational Reality: When loan funds are drawn down in tranches before construction expenditures occur, surplus cash is often placed in short-term bank fixed deposits. Interest earned on these deposits directly offsets and reduces capitalizable borrowing costs.

1. General: Borrowings

• Definition: Funds borrowed generally by the corporate treasury and used to finance diverse operational and capital activities, including qualifying assets.
• Capitalization Formula: Capitalized Cost = Qualifying Asset Expenditure × Capitalization Rate (Weighted Average Cost of General Borrowings)
• Statutory Ceiling: The total amount of borrowing costs capitalized across all qualifying assets during an accounting period shall not exceed the total borrowing costs actually incurred by the enterprise during that period.

Capitalization Rate = [ Total Borrowing Costs on General Outstanding Borrowings ] ÷ [ Weighted Average Total Outstanding General Borrowings ]

• The Lifecycle of Capitalization: Commencement, Suspension, and Cessation Ind AS 23 establishes rigid temporal boundaries governing when borrowing costs may be capitalized: ======================================================================================== TEMPORAL LIFECYCLE OF BORROWING COST CAPITALIZATION (IND AS 23) ======================================================================================== [ 1. COMMENCEMENT OF CAPITALIZATION ] Capitalization begins on the date when ALL THREE conditions are met simultaneously: (a) Expenditures for the qualifying asset are being incurred (cash paid / liabilities accrued); (b) Borrowing costs are being incurred by the entity; AND (c) Activities that are necessary to prepare the asset for its intended use are in progress. │ ▼ [ 2. SUSPENSION OF CAPITALIZATION ] Capitalization MUST BE SUSPENDED during extended periods in which active technical development is interrupted (e.g., labor strikes, litigation halts, management delays).
• EXCLUSION: Capitalization is NOT suspended during periods when substantial technical or administrative work is being carried out, or when a temporary delay is an inherent and unavoidable part of the engineering process (e.g., waiting for concrete to cure). │ ▼ [ 3. CESSATION OF CAPITALIZATION ] Capitalization MUST CEASE when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are COMPLETE.
• Partial Completion: When construction is completed in parts and each part is capable of being used independently while construction continues on other parts (e.g., a business park with 5 independent office towers), capitalization ceases on each tower upon completion. ========================================================================================

3. Ind AS 12: Income Taxes (Current Tax & Deferred Tax) Ind AS 12 prescribes the accounting treatment for income taxes. In corporate financial statements, the tax expense recognized in profit or loss rarely equals the actual income tax payable to the government tax authorities (e.g., the Income Tax Department under the Indian Income-tax Act, 1961). This variance arises because the rules governing accounting profit (calculated under Ind AS) differ fundamentally from the statutory rules governing taxable profit (calculated under tax legislation).

Ind AS 12 ensures that financial statements reflect both: (1) The Current Tax liability or asset for taxes payable or recoverable for the current period; and (2) The Deferred Tax consequences—the future tax liabilities or assets that will materialize when the enterprise recovers or settles the carrying amounts of its assets and liabilities.

CURRENT TAX DEFINITION & ACCOUNTING RECOGNITION Current Tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period. Unpaid current tax for current and prior periods is recognized as a liability (Current Tax Liability). If the amount already paid (via Advance Tax and TDS) exceeds the amount due, the excess is recognized as an asset (Current Tax Asset). Current tax assets and liabilities are measured at the amounts expected to be paid to or recovered from the taxation authorities using the tax rates and laws enacted or substantively enacted by the end of the reporting period.

The Balance Sheet Liability Approach & Tax Base Concept Unlike old Indian GAAP (AS 22) which focused on the Statement of Profit and Loss and measured "timing differences" (differences between accounting profit and taxable income), Ind AS 12 is grounded entirely in the Balance Sheet Liability Approach. It focuses on Temporary Differences—the variance between the carrying amount of an asset or liability in the balance sheet and its statutory Tax Base.

RIGOROUS DEFINITIONS OF TAX BASE Foundational Rules Tax Base of an Asset The amount that will be deductible for tax purposes against any taxable economic benefits that will flow to the entity when it recovers the carrying amount of the asset.

• Rule: If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.
• Example: A machine costs Rs. 1,00,000. For accounting, depreciation of Rs. 20,000 is charged (Carrying Amount = Rs. 80,000). For tax, tax depreciation of Rs. 30,000 is allowed (Tax Base = Rs. 70,000).

Tax Base of a Liability Its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods.

• Revenue in Advance: For revenue received in advance, the tax base is its carrying amount less any amount of revenue that will not be taxable in future periods.
• Example: Accrued bonus of Rs. 50,000. Under Section 43B of Income-tax Act, it is deductible only upon actual payment. Carrying Amount = Rs. 50,000. Tax Base = Rs. 50,000 − Rs. 50,000 = Rs. 0.

Taxable vs. Deductible Temporary Differences: DTL and DTA Temporary differences are classified into two distinct operational categories:

Dimension Taxable Temporary Differences (TTD) → DTL Deductible Temporary Differences (DTD) → DTA Economic Impact Results in taxable amounts in determining taxable profit of future periods when asset/liability is recovered or settled.

Results in deductible amounts in determining taxable profit of future periods when asset/liability is recovered or settled.

Asset Condition Carrying Amount of Asset > Tax Base of Asset (e.g., accelerated tax depreciation vs. straight-line accounting depreciation).

Carrying Amount of Asset < Tax Base of Asset (e.g., provision for bad debts recognized in books but disallowed for tax until actual write-off).

Liability Condition Carrying Amount of Liability < Tax Base of Liability (Rare in practice).

Carrying Amount of Liability > Tax Base of Liability (e.g., warranty provisions or employee leave encashment deductible only on cash basis under Sec 43B).

Balance Sheet Output Deferred Tax Liability (DTL) Must be recognized for ALL taxable temporary differences (except initial goodwill recognition).

Deferred Tax Asset (DTA) Recognized ONLY to the extent that it is probable that future taxable profit will be available.

Formula DTL = Taxable Temporary Difference × Enacted Tax Rate DTA = Deductible Temporary Difference × Enacted Tax Rate Measurement, Non-Discounting & Allocation (Profit & Loss vs. OCI) Ind AS 12 establishes strict measurement and presentation protocols:

• Applicable Tax Rates: Deferred tax assets and liabilities must be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
• Absolute Ban on Discounting: Deferred tax assets and liabilities shall NOT be discounted. The time value of money cannot be applied to deferred taxes due to the extreme complexity of forecasting the exact timing of future reversals.
• The Matching Principle of Tax Allocation: Current and deferred tax is recognized as income or expense and included in Profit or Loss for the period.
• EXCEPTION: Tax arising from an item recognized outside profit or loss must be recognized outside profit or loss. Items recognized in Other Comprehensive Income (OCI)—such as revaluation surplus under Ind AS 16 or actuarial remeasurements under Ind AS 19—must have their related tax recognized directly in OCI. Tax arising from equity transactions (e.g., share issue expenses under Ind AS 32) is recognized directly in Equity.
• Offsetting Rules: An entity shall offset current tax assets and liabilities, and deferred tax assets and liabilities, if, and only if, the entity has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis.

1. Comprehensive: Comparative Synthesis: Ind AS vs. Old Indian GAAP (AS) Dimension Old Indian GAAP (AS 16 & AS 22) Converged Standards (Ind AS 23 & Ind AS 12) Borrowing Costs Approach (Ind AS 23 vs. AS 16) Capitalization allowed. Qualifying asset defined as asset taking substantial period (often presumed as 12 months as per ICAI guidance). Foreign exchange adjustment formula less explicit.

Capitalization mandatory. Substantial period judged on case-by-case facts without arbitrary 12-month rule. Explicit mathematical formula for foreign exchange adjustments.

Income Tax Approach (Ind AS 12 vs. AS 22)

• Income Statement Approach: Focused on Timing Differences (revenue/expense differences in P&L reversing in future). No concept of tax base of balance sheet items.
• Balance Sheet Liability Approach: Focuses on Temporary Differences (differences between balance sheet carrying amount and tax base). Covers both P&L timing items and direct balance sheet revaluations.

Virtual Certainty vs. Probability DTA on unabsorbed depreciation and carry-forward business losses could only be recognized if supported by "Virtual Certainty supported by convincing evidence".

DTA on unused tax losses and credits recognized if it is "Probable that future taxable profit will be available".

Reassessed at each balance sheet date. Tax Allocation to OCI / Equity All tax effects were routed exclusively through the Profit and Loss statement, even if the underlying item was credited directly to reserves.

• Strict Backward Tracing: Tax relating to items recognized in OCI is recognized in OCI; tax relating to items in equity is recognized directly in equity.

1. Detailed: Step-by-Step Practical Numerical Problems COMPREHENSIVE PROBLEM 1: BORROWING COSTS (SPECIFIC & GENERAL BORROWINGS - IND AS 23) Numerical Application

• Scenario: Zenith Infrastructure Ltd. commenced construction of a qualifying industrial chemical plant on April 1, 2025. The construction was completed on March 31, 2026. The entity incurred the following expenditures:

April 1, 2025: Rs. 20,00,000 July 1, 2025: Rs. 30,00,000 October 1, 2025: Rs. 40,00,000 January 1, 2026: Rs. 10,00,000 Financing Details:

• Specific Borrowing: On April 1, 2025, the company took a specific bank loan of Rs. 40,00,000 at an interest rate of 10% per annum dedicated to the plant. During the year, surplus unutilized funds of this loan were temporarily invested in short-term liquid funds, earning interest income of Rs. 45,000.
• General Borrowings: The company had two general loans outstanding during the entire financial year: 12% Term Loan: Rs. 50,00,000 (Annual Interest = Rs. 6,00,000) 14% Debentures: Rs. 30,00,000 (Annual Interest = Rs. 4,20,000)
• Required: Calculate the capitalizable borrowing cost under Ind AS 23 and the total cost of the chemical plant. ======================================================================================== DETAILED SOLUTION STEP-BY-STEP (IND AS 23) ======================================================================================== [ STEP 1: BORROWING COST ON SPECIFIC BORROWINGS ]
• Specific Loan Amount = Rs. 40,00,000 at 10% p.a.
• Gross Specific Interest = Rs. 40,00,000 × 10% = Rs. 4,00,000
• Less: Temporary Investment Income Earned = −Rs. 45,000
• Net Capitalizable Specific Borrowing Cost = Rs. 3,55,000 [ STEP 2: WEIGHTED AVERAGE CAPITALIZATION RATE FOR GENERAL BORROWINGS ]
• Total General Borrowings = Rs. 50,00,000 + Rs. 30,00,000 = Rs. 80,00,000
• Total General Interest = Rs. 6,00,000 + Rs. 4,20,000 = Rs. 10,20,000
• Capitalization Rate = (Rs. 10,20,000 ÷ Rs. 80,00,000) × 100 = 12.75% [ STEP 3: CALCULATION OF WEIGHTED AVERAGE QUALIFYING EXPENDITURE ]
• Date of Outlay | Amount (Rs.) | Period (Months) | Weighted Amount (Rs.) 01-Apr-2025 | 20,00,000 | 12 / 12 | 20,00,000 01-Jul-2025 | 30,00,000 | 9 / 12 | 22,50,000 01-Oct-2025 | 40,00,000 | 6 / 12 | 20,00,000 01-Jan-2026 | 10,00,000 | 3 / 12 | 2,50,000 TOTAL OUTLAY | 1,00,00,000 | | 65,00,000 [ STEP 4: ALLOCATION BETWEEN SPECIFIC AND GENERAL BORROWINGS ]
• Total Weighted Average Expenditure = Rs. 65,00,000
• Funded by Specific Borrowing = −Rs. 40,00,000
• Expenditure funded by General Borrowings = Rs. 25,00,000 [ STEP 5: BORROWING COST ON GENERAL BORROWINGS ]
• Capitalizable General Interest = Rs. 25,00,000 × 12.75% = Rs. 3,18,750
• Ceiling Check: Rs. 3,18,750 ≤ Total General Interest Incurred (Rs. 10,20,000) [SATISFIED] [ STEP 6: TOTAL CAPITALIZED COST OF CHEMICAL PLANT ]
• Total Actual Construction Outlay .......................... Rs. 1,00,00,000
• Specific Borrowing Cost Capitalized ....................... Rs. 3,55,000
• General Borrowing Cost Capitalized ........................ Rs. 3,18,750
• Total Capitalized Cost of Chemical Plant .................. Rs. 1,06,73,750
• Interest Expensed in Statement of Profit & Loss: Total General Interest (Rs. 10,20,000) − Capitalized (Rs. 3,18,750) = Rs. 7,01,250 ======================================================================================== COMPREHENSIVE PROBLEM 2: FOREIGN EXCHANGE BORROWING COST ADJUSTMENT (IND AS 23) Numerical Application
• Scenario: On April 1, 2025, Global Logistics Ltd. raised a foreign currency loan of USD 1,00,000 at an interest rate of 4% per annum to finance the construction of a qualifying automated distribution hub.

The loan interest is payable on March 31, 2026. Exchange Rate on April 1, 2025: 1 USD = Rs. 80.00.

Exchange Rate on March 31, 2026: 1 USD = Rs. 85.00.

Had the company borrowed in Indian Rupees on April 1, 2025, the domestic bank interest rate would have been 10.5% per annum.

• Required: Calculate the capitalizable borrowing cost and the foreign exchange difference under Ind AS 23 and Ind AS 21. ======================================================================================== DETAILED SOLUTION STEP-BY-STEP (IND AS 23) ======================================================================================== [ STEP 1: INITIAL CONVERSION & ACTUAL INTEREST INCURRED ]
• Loan Principal in INR at 01-Apr-2025 = USD 1,00,000 × Rs. 80 = Rs. 80,00,000
• Foreign Interest in USD = USD 1,00,000 × 4% = USD 4,000
• Foreign Interest converted at closing rate = USD 4,000 × Rs. 85 = Rs. 3,40,000 (This Rs. 3,40,000 is directly capitalizable as interest borrowing cost). [ STEP 2: CALCULATION OF TOTAL EXCHANGE LOSS ]
• Loan Principal at closing rate (31-Mar-2026) = USD 1,00,000 × Rs. 85 = Rs. 85,00,000
• Total Foreign Exchange Loss = Rs. 85,00,000 − Rs. 80,00,000 = Rs. 5,00,000 [ STEP 3: COMPARISON WITH DOMESTIC BORROWING BENCHMARK ]
• Equivalent Domestic Interest Cost = Rs. 80,00,000 × 10.5% = Rs. 8,40,000
• Actual Foreign Interest Paid = Rs. 3,40,000
• Maximum Exchange Loss Eligible as Borrowing Cost: = Equivalent Domestic Interest − Actual Foreign Interest = Rs. 8,40,000 − Rs. 3,40,000 = Rs. 5,00,000 [ STEP 4: FINAL ALLOCATION UNDER IND AS 23 & IND AS 21 ]
• Actual Exchange Loss = Rs. 5,00,000
• Maximum Eligible = Rs. 5,00,000
• Exchange loss treated as adjustment to borrowing cost = Rs. 5,00,000
• Exchange loss charged to Profit & Loss under Ind AS 21 = Rs. 0
• TOTAL BORROWING COST CAPITALIZED TO QUALIFYING ASSET: = Foreign Interest (Rs. 3,40,000) + Exchange Loss (Rs. 5,00,000) = Rs. 8,40,000 ======================================================================================== COMPREHENSIVE PROBLEM 3: INCOME TAXES & DEFERRED TAX ARCHITECTURE (IND AS 12) Numerical Application
• Scenario: Apex Technologies Ltd. has reported the following balance sheet balances as on March 31, 2026. The enacted statutory corporate tax rate is 30%:
• Plant & Machinery: Carrying Amount in Balance Sheet = Rs. 12,00,000. Tax Base (as per Income Tax depreciation records) = Rs. 8,00,000.
• Provision for Bad & Doubtful Debts: Carrying Amount = Rs. 1,50,000. Under tax law, bad debts are deductible only when actually written off as irrecoverable. Tax Base = Rs. 0.
• Provision for Employee Leave Encashment: Carrying Amount = Rs. 2,00,000. Deductible under Section 43B only upon cash payment. Tax Base = Rs. 0.
• Prepaid Insurance: Carrying Amount = Rs. 60,000. Under tax laws, insurance expense is deducted on cash payment basis in full in the year paid. Tax Base = Rs. 0.
• Revaluation Surplus on Freehold Land: During the year, land was revalued upwards by Rs. 5,00,000, credited to OCI and accumulated in Revaluation Surplus. Tax Base of land is its historical cost.
• Required: Prepare the comprehensive Deferred Tax Statement identifying Taxable/Deductible Temporary Differences, calculate DTL and DTA, and show the allocation between Statement of Profit & Loss and Other Comprehensive Income (OCI). ======================================================================================== DETAILED SOLUTION STEP-BY-STEP (IND AS 12) ======================================================================================== [ STEP 1: ASSET & LIABILITY TEMPORARY DIFFERENCE ANALYSIS ] Item Carrying Amt Tax Base Difference Nature Deferred Tax ─────────────────────────────────────────────────────────────────────────────────────────

1. Plant &: Machinery Rs. 12,00,000 Rs. 8,00,000 Rs. 4,00,000 Taxable DTL @ 30% (Carrying Amt > Tax Base → Future taxable amount) = Rs. 1,20,000
2. Provision for: Rs. 1,50,000 Rs. 0 Rs. 1,50,000 Deductible DTA @ 30%

• Doubtful Debts (Liability: Carrying Amt > Tax Base) = Rs. 45,000

1. Leave: Encashment Rs. 2,00,000 Rs. 0 Rs. 2,00,000 Deductible DTA @ 30%

• Provision (Liability: Carrying Amt > Tax Base) = Rs. 60,000

1. Prepaid: Insurance Rs. 60,000 Rs. 0 Rs. 60,000 Taxable DTL @ 30% (Asset: Carrying Amt > Tax Base → Deduction already taken) = Rs. 18,00,0
2. Land: Revaluation Rs. 5,00,000 Rs. 0 Rs. 5,00,000 Taxable DTL @ 30% Surplus (Recognized in OCI) = Rs. 1,50,000 ───────────────────────────────────────────────────────────────────────────────────────── [ STEP 2: AGGREGATION OF DTL AND DTA ]

• Total Taxable Temporary Differences = Rs. 4,00,000 + Rs. 60,000 + Rs. 5,00,000 = Rs. 9,60,000
• Total Deferred Tax Liability (DTL) = Rs. 9,60,000 × 30% = Rs. 2,88,000
• Total Deductible Temporary Differences = Rs. 1,50,000 + Rs. 2,00,000 = Rs. 3,50,000
• Total Deferred Tax Asset (DTA) = Rs. 3,50,000 × 30% = Rs. 1,05,000
• Net Deferred Tax Liability in Balance Sheet: = Total DTL (Rs. 2,88,000) − Total DTA (Rs. 1,05,000) = Rs. 1,83,000 [ STEP 3: ALLOCATION BETWEEN PROFIT & LOSS AND OTHER COMPREHENSIVE INCOME ]
• Tax on Land Revaluation recognized in OCI: = Rs. 5,00,000 × 30% = Rs. 1,50,000 (DTL charged directly to OCI)
• Net Deferred Tax Expense charged to Statement of Profit and Loss: = Total Net DTL (Rs. 1,83,000) − OCI Tax (Rs. 1,50,000) = Rs. 33,000 [ JOURNAL ENTRIES AS AT MARCH 31, 2026 ]

1. Deferred: Tax Expense (Profit & Loss) A/c ....... Dr. Rs. 33,000 Deferred Tax Expense (OCI) A/c ................. Dr. Rs. 1,50,000 To Deferred Tax Liability (Net) A/c Rs. 1,83,000 (Being recognition of net deferred tax liability allocated between P&L and OCI) ========================================================================================
2. Financial: Reporting Disclosures & Statutory Governance Corporate entities presenting accounts under Ind AS must provide exhaustive disclosures in their published financial reports:

Ind AS 23 Disclosures: The accounting policy adopted for borrowing costs; the aggregate amount of borrowing costs capitalized during the period; and the capitalization rate used to determine the amount of borrowing costs eligible for capitalization.

Ind AS 12 Disclosures: The major components of tax expense (income) presented separately in the statement of profit and loss; an explanation of the relationship between tax expense (income) and accounting profit via a numerical reconciliation between tax expense and the product of accounting profit multiplied by the applicable tax rate (the Effective Tax Rate Reconciliation); the amount of deferred tax liability and asset recognized in the balance sheet for each type of temporary difference and in respect of each type of unused tax losses; and the amount of deductible temporary differences, unused tax losses, and unused tax credits for which no deferred tax asset is recognized in the balance sheet.