[Remember: (A) future taxable amount is generally equal to carrying amount.

(B) Where the future benefits are taxable, the carrying amount equals the future taxable amount; hence the tax base equals the future deductible amount. ] Prepayments (prepaid expenses) Carrying amount Less future taxable amount (1) Add future deductible amount (2) Tax base P3,000 (3,000) 0 P 0

1. Future taxable amounts = 3,000. When cash is paid in advance for certain expenses (DR prepaid expenses, CR Cash), these are immediately deductible from taxable income which makes accounting income higher than taxable income. This gives rise to a taxable temporary difference (or future taxable amount) of P3,000. 2. Future deductible amount = zero. The prepayment of P3,000 was deductible when paid and therefore there are no future deductible amounts. Trade receivables P50,000, with allowance for doubtful accounts, P2,000 Carrying amount Future taxable amounts (1) Future deductible amounts (2) Tax base P 50,000 0 2,000 P 52,000

1. Future taxable amount is zero since sales (that gave rise to trade receivables) has already been included in taxable profit. 2. Doubtful accounts expense, already deducted from accounting income, has not yet been deducted from taxation income. It will be deducted in the future when the accounts are actually written (hence future deductible amount is 2,000) . Plant and equipment, P10,000; carrying amount, P5,400 Carrying amount Future taxable amount (1) Future deductible amount (2) Tax base P 5,400 (5,400) 3,500 P 3,500

1. The future benefits (i.e. use and/or sales proceeds) are taxable; therefore the carrying amount is equal to the future taxable amount. 2. Note, however, that there is a difference between accounting depreciation (P4,600 here) and tax depreciation (P6,500 here). This results in a lower carrying amount under tax laws (P3,500) and therefore (following the definition of tax base of assets in par. 7 of PAS 12) the tax base is the amount

that will be deductible for tax purposes against any taxable economic benefits when the entity uses or sells the asset. Loan receivable Carrying amount Future taxable amounts Future deductible amounts Tax Base P 25,000 0 0 P 25,000

Loan repayments, interest bearing or non-interest bearing, do not have any tax consequence (i.e. are not taxable). Where there are no future taxable amounts, generally the deductible amount is zero and the tax base equals the carrying amount. (The exception is trade receivables; the reason for this exception is that trade receivables are connected with doubtful accounts expense therefore the future deductible amount is not zero.) Interest receivable Carrying amount Future taxable amounts (1) Future deductible amounts Tax Base P 1,000 (1,000) 0 P 0

1. Interest income is taxable only when received, hence future taxable amounts. 2. They are not deductible in the future. Tax bases of liabilities Remember: Liabilities do not create taxable amounts (exception: unearned revenue). The tax base of a liability is its carrying amount , less any amount that will be deductible for tax purposes in respect of that liability in future periods. Formula is: Carrying amount plus future taxable assets minus future deductible amounts. = tax base. Provision for annual leave (like accrued expenses; same rule applies) Carrying amount 3,900 Future taxable amounts 0 Future deductible amounts (1) (3,900) Tax Base P 0 1. Reported as expense under accounting income but these are not deductible until they are paid, thus they are future deductible amounts Trade payables Carrying amount Future taxable amounts Future deductible amounts (1) Tax Base 34,000 0 0 P 34,000

1. Where there is no future deductible amount, the carrying amount equals the tax base. This applies also to Loans payable. Subscription revenue received in advance (unearned revenue) Carrying amount 500 Future taxable amounts (1) (500) Future deductible amounts 0 Tax Base P 0 1. Subscription revenue is taxable when received therefore there is no more future taxable amounts thus the deduction.