5/11/2021 Ce gageNOW 2 O li e eachi g a d lea i g e ce f Ce gage Lea i g

1. 02
At the end of 2021, AA Company s first year of operations. AA Company reported pretax financial income of P4,900,000. Included under expenses was a
P300,000 non-deductible expense. Furthermore, AA Company includes a two-year warranty on its machinery sales. An analysis of the warranty records
reveals that it has recorded and accrued warranty provisions of P750,000. Cost and expenses under this classification, however, are deductible only for
tax purposes when paid. The enacted tax rates for 2021 and future year is 30%.

a) What is the current tax expense of AA for 2021?

Answer:
1785000

b) What is the deferred tax expense (benefit) of AA for 2021? [ e ega i e ig (-) f be efi ]

Answer:
-225000

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Accounting Income 4,900,000

Permanent differences:
Non Taxable Income ( )
Non Deductible Expense ( + ) 300,000 300,000
Accounting Income subject to tax 5,200,000 30% 1,560,000 Total Tax Expense
Temporary Differences (current year):
Deductible Temporary ( + ) 750,000 30% (225,000) Increase in DTA ( be efi )
Taxable Temporary ( ) Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total 750,000 750,000 30% 225,000 (225,000) Deferred Tax Expense (Benefit)
Taxable Income 5,950,000 30% 1,785,000 C e Ta E e e

2. 04
The following facts relate to Rally Company:

Deferred tax liability, January 1 2021; 360,000.

Deferred tax asset, January 1, 2021; 105,000.
Pretax financial income for 2021; P2,000,000.
Non-taxable revenues, P340,000; non-deductible expenses, P210,000.
Cumulative difference at December 31, 2021, giving rise to future taxable amounts, P970,000.
Cumulative difference at December 31, 2021, giving rise to future deductible amounts P220,000.
Tax rate for current and future years 30%.

a) What is Rally Company s current tax expense for the year?

Answer:
591000

b) What is Rally Company s net deferred tax expense (benefit) for the year? [ e ega i e ig (-) f be efi ]

Answer:
-30000

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3. 0
AA Company provided the following information on December 31, 2023?

Ca i ga Ta Ba e
Accounts receivable 3,000,000 3,500,000
Property, plant and equipment 6,500,000 5,000,000
Estimated warranty liability 1,600,000 0
Deposits received in advance 1,400,000 0

The depreciation rates for accounting and taxation are 15% and 25% respectively. The deposits are taxable when received and warranty costs are
deductible when paid. An allowance for doubtful debts of P500,000 has been raised against accounts receivable for accounting purposes but such debts
are deductible only when written off as uncollectible. The tax rate is 30%. What amount should be reported as defe ed a a e on December 31,
2023?

Answer:
1050000

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Acc Ca i gA Ta Ba e Diffe e ce Ta Ra e DTA DTL

Receivable 3,000,000 3,500,000 500,000 30% 150,000
PPE 6,500,000 5,000,000 1,500,000 30% 450,000
Warranty 1,600,000 0 1,600,000 30% 480,000
Deposit 1,400,000 0 1,400,000 30% 420,000
Total 1,050,000 450,000

4. 0
At the beginning of 2022, Shellshock Company purchased an asset for P600,000 with an estimated useful life of 5 years and an estimated salvage value
of P50,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance
method is being used. Shellshock Company s tax rate is 40% for 2022 and all future years. At the end of 2022, what amount of deferred tax
asset(liability) is reported on Shellshock s balance sheet? [ e ega i e ig (-) f liabili ]

Answer:
-52000

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Financial reporting depreciation ( 00,000 0,000) / 110,000

Tax depreciation ( 00,000 40%) 240,000
Taxable temporary difference 130,000
Tax rate 40%
DTL 52,000

5. 0
Dividends receivable from a subsidiary have a carrying amount of P4,000. The dividends are not taxable. How much is the tax base of the asset?

Answer:
4000

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A e ai i gf a e e e ha i e a permanen diffe e ce ( - a ab e e e e a ead bjec ed a fi a a ), i a base is eq al o i s carr ing

amo n .

. 03
AA Company began operations on January 1, 2021 and reported a pretax financial income of P3,400,000 as of year ending December 31, 2021. This
amount includes:

Interest on government bonds of P250,000.

Penalties and fines of P170,000.
Depreciation expense on its machines of P225,000.
Rental income of P170,000.

The depreciation expense and rental income included in the 2021 tax return were higher by P90,000 and P45,000 respectively. The enacted tax rate in
2021 and future years is 30%.

a) What is the current tax expense of AA Company?

Answer:
982500

b) What is the net deferred tax expense of AA Company?

Answer:
13500

c) What is the Deferred tax liability that AA should report in 2021 financial position?

Answer:
27000

c) What is the Deferred tax asset that AA should report in 2021 financial position?

Answer:
13500

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Accounting Income 3,400,000

Permanent differences:
Non Taxable Income ( ) (250,000)
Non Deductible Expense ( + ) 170,000 (80,000)
Accounting Income subject to tax 3,320,000 30% 996,000 Total Tax Expense
Temporary Differences (current year):
Deductible Temporary ( + ) 45,000 30% 13,500 B Increase in DTA ( benefit )
Taxable Temporary ( ) (90,000) 30% 27,000 E Increase in DTL ( expense )
Reversal of Differences:
Deductible Temporary ( ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total (45,000) 30% 225,000 13,500 E Deferred Tax Expense (Benefit)
Taxable Income 3,275,000 30% 982,500 Current Tax Expense

. 01
AA Company started operations on January 1, 2021. At the end of the first year of operations, AA reported pre-tax income of P2,800,000. An analysis of
the components included in this computation was a P300,000 non-taxable revenue and installment sales of P800,000 of which P350,000 remained
uncollected (due March 15, 2023). For tax purposes, income from installment sales is taxable only when cash is collected. The enacted tax rates for 2021
and future years is 30%.

a) What is the current tax expense of AA Company?

Answer:
645000

b) What is the deferred tax expense (benefit) of AA Company? [ e ega i e ig (-) f be efi ]

Answer:
105000

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Accounting Income 2,800,000

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Permanent differences:
Non Taxable Income ( ) (300,000)
Non Deductible Expense ( + ) --- (300,000)
Accounting Income subject to tax 2,500,000 30% 750,000 Total Tax Expense
Temporary Differences (current year):
Deductible Temporary ( + ) --- --- Increase in DTA ( benefit )
Taxable Temporary ( ) (350,000) 30% 105,000 I c ea e i DTL ( e e e)
Reversal of Differences:
Deductible Temporary ( ) Decrease in DTA ( expense )
Taxable Temporary ( + ) Decrease in DTL ( benefit )
Total --- (350,000) 30% 105,000 105,000 Deferred Tax Expense (Benefit)
Taxable Income 2,150,000 30% 645,000 C e Ta E e e
Estimated tax payment made ---
Income tax payable 645,000

. 05
The following information was extracted from the records of Rampage Company as of December 31, 2021:

Ca i ga
Other receivables (NRV) 150,000
Prepaid rent 30,000
Motor vehicles 165,000
Accumulated depreciation 61,875
Provisions for warranty 12,000
Deposits received in advance 15,000

The depreciation rates for accounting and taxation are 15% and 20% respectively. Deposits are taxable when received while rentals and warranty costs
are deductible when paid. An allowance for doubtful debts of P25,000 has been raised against other receivables for accounting purposes, but such debts
are deductible only when written off as uncollectible. The rate applicable was 30%. R d ff a e i h le be

a) What is the Deferred Tax Asset of Rampage Company as of December 31, 2021?

Answer:
15600

a) What is the Deferred Tax Liability of Rampage Company as of December 31, 2021?

Answer:
15188

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Acc Ca i gA Ta Ba e Diffe e ce Ta Ra e DTA DTL

Receivable 150,000 175,000 25,000 30% 7,500
Prepaid rent 30,000 0 30,000 30% 9,000
Motor vehicle 103,125 82,500 20,625 30% 6,188
Warranty 12,000 0 12,000 30% 3,600
Deposit 15,000 0 15,000 30% 4,500
Total 15,600 15,188

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