Understanding Dormant Companies A dormant company is one that has no significant financial transactions during a financial year. It may be registered but not engaged in any business activity or income generation. The Companies Act allows voluntary dormant status for...
Annual Assessment Basis MAT applicability is evaluated independently for each assessment year. It depends on the book profit reported in the audited financial statements. If the income tax payable under normal provisions is less than 15% of book profit, MAT becomes...
Nature of Asset Retirement Obligation Asset Retirement Obligation (ARO) refers to the expected future cost of dismantling or restoring a site. It typically arises in industries like mining, oil & gas, and power generation. The provision is recorded as a liability...
Meaning of Interest Waiver An interest waiver refers to the cancellation of interest obligations by a lender. It may arise through restructuring, settlement, or compromise of loan terms. The waived interest may have been earlier recognized as an expense. It is treated...
Nature of Royalty Income Royalty income refers to payments received for the use of intellectual property or technical know-how. It may include software licenses, patents, trademarks, copyrights, or mining rights. Such income is accounted as revenue in the Profit and...
Concept of Losses in MAT Context Losses under MAT refer to book losses reported in the Profit and Loss Account. These may include operating losses or adjustments like depreciation and provisions. Losses under normal tax provisions differ from losses under MAT...
Nature of Construction Contracts in Financials Construction contracts are long-term contracts recognized using the percentage of completion method. Revenue and expenses are recognized in phases based on work progress. Timing differences often arise between accounting...
Meaning of MAT Credit MAT credit arises when a company pays Minimum Alternate Tax instead of regular tax. It represents the excess of MAT paid over the normal income tax liability. This credit is allowed to be set off against future tax liabilities. The objective is...
Nature of Reversal of Provisions Reversal of provisions occurs when previously recorded liabilities are no longer required. It reflects as income or credit in the current year's Profit and Loss Account. Common reversals include provisions for doubtful debts, gratuity,...
Meaning of Prior Year Adjustments Prior year adjustments refer to income or expenses related to earlier periods. They are recorded in the current year’s Profit and Loss Account. These can arise due to errors, omissions, or revisions in estimates. Adjustments may...