Chapter Bl: ess on Share- By hin i rappin Creevorcompersauon ACCOUNTING FOR ING) ieee Seton ustndrg INCOME Taxes : ‘ eaNjeone Ts Se YS ssltie __ ay STANDARD REFERENCE(S———___ ability for Ee ance is) a ‘Share premium (squeeze) F 4,530,000 6. ANSWER: B Liability for compensation 9,300,000 Share optons outstanding 1,230,000 ash 9,300,009 Share premium (squeeze) 1,230,009 jeer bee L Income Satemant fe | ‘ads in computing | Cor (Computed in accordance with BIR tax laws. 1146 E 47Chatter 82: Acting >The following table summarizes the above differences: ” bn, me te np ea area e's a wee ete son rs et one ‘These items are excluded from the Income tax return and do rot have future tax ‘consequences. which are included ©, tee i accounting income ang", 8 income but at differeng Ue Perec Temporary diferen Onig direst > These are inc pense tems recat for accounting puro one period but reese for ta pared another ‘period for yl versa). (OF Vee > These items have futre tax consequences sive rise to either: Deferred tax asset Deferred tax ably o arene Dividends received by domestic corporations or { non-resident corporation ! from a domestic corporation. > Gain from settiement of | life. Insurance of officers and employees where the entity is the beneficiary of the insurance policy, | > Ue insurance premium paid when the entity isthe | Irrevocable beneficiary of | the life insurance policy | } > Fines, penalties, and/or surcharges for violations of laws. > Charitable contributions in excess of tax limitation, 1. Taxable —temporay Lee differences > Results in future taxable amount income tax becouse in determining | they ore. setter | taxable income of | exempted from future periods, income tax or already | subjected to final tax. > Gives rise to 2 | defered tt 2 Non-deductble menses ‘ability. > These are expense items that are not | 2. Deductible_temporary allowed tbe. differences recognized or > Results in future deducted for tax deductible Purposes, amount = determining aw Bramples: taxable income Interest income on time or future periods. savings deposits, a government bonds, and > Gives rise treasury bls oF municipal deferred bond, asset, > Gains. subject LL sae 1 cot Se 1148 je: The if insurance premium i ered a deductible expanse when the isnot the beneficiary of the life Insurance poly, | iftion of Tax Base » Taxbase of an ass ‘recognized or all attributable to the asset 4 Its the emount that future income. > Computed as follows: Carrying value ~ Temporary Difference Bemates: 1. The accrued interest receivable has a carrying amount of 5,000. The related interest income wil be taxable when collet > The tax base of the accrued interest receivable account's Zer0 (6,000 ~ 5,000) since the related interest ll be taxable ony wt collected, is the amount ofthe asset or labiity that purposes. In other terms, Its the amount for tax purposes. be deductible for tax purposes against 2 Current liabilitie ting expenses with a carrying ies include accrued operating ‘mount of 10,000, The related expense wil be deductible for tax Purposes when paid. 10,000 >The tax base ofthe accrued opeatina eee St ~ 10,000) since the related expense will be: Pala, 1149Cette 8 At aterred TELIA etx payable UE pecs way a r Dhebletomporar aference 0 Uure taxable amy pies rom the fllona: . 7 Accounting income > Taxable income ying amount > ASS tx base apmang amount Labi ax base 7 Asset % wabilty’s en sccountir Fine tems are included in accounting income but are Mane penods (le, accrual of income for accounting x 2b favabte oy when cohte). Purpose expenses ar deductible for tax purposes but deductible or a ” umposes in future periods (Le, higher depreciation charges oe purposes, prepaid expenses). lustration 22.1: aa [re aco, an ety bid 2 customer anointing w oi us ce “anny Decne The 8 nese il Ee cae Suan 2 |-te ety reported prof amounting to P210 forthe year 2022 | ee 1s the billed income during December 2022 already taxable for the year | 2022? formally, we recognize an ie of realized. In this case, income for tax purposes when ts. | Arabs: ‘Accounting income 210 Less: Biled income _(10 | Taxable income 200 Accounting income > Taxable - Deferred tax lal 5 > Receivable's carrying amount (P10) > Receivable’s tax base (220) Deferred tax lability | Illustration 22,2: | On Jeruary 1, 2022, an entity paid in advance a 3-year rent for an office so | ‘amounting to 300,000. The advance rental payment covers the YES ‘through 2024, For accounting purposes, the prepaid rents amortized over 3 yoa"s ThE eported profit amounting to P2,500,000 for the year 2022, —— — (eo 022? Income ‘ : cot tized prepaid rent (3007 10077 | fips unarot income rasa > x Goodh income. ‘he: taable temporary differences lability Canying amount of Venture which is higher ered Tax Asset deductible. erating loss carryforward. : 1150 (ole ®300,000 rent Is allowed to by pee Nese ree | sco ene» rst na | ft sored ny. SS stay ae bs gee joie: Goodwill resulting from business combinations 1s 5 Upward revaluation of an asset. 1151 Cat 22. te Aecntating nso1000 —L200,900)_ 2,300,000 etre cts 00) > Presa reac ase ‘arable temporary ity shall not be recognized whe en the taxable temporary difference arises from the following oe resulting from business combinations x Asset or liabilty that affects nether accounting nor tavable % _Undistributed profit of subsidiary, associate or oint venture. > Most taxable temporary differences arise because of timing differences, > The following are not timing differences but gives rise to defered tax rent in subsidiary, associate, or joint nits tax base. Cost of business combination accounted for as an acquisition. The amount of income tax recoverable in future periods with respect to porary difference (or future deductible amount) and Paar |> arses from the following ing Income < Taxable income vee unt < Assets tax base Example: income i included in taxable ‘accounting income of future pe > Expenses are deducted from. tia tar purposes in future period oe oe btu accounts). treating an enty received in acvonce 23-year rent fr ‘300,000. The advance rental payment covers ite = he eae is amortized overs the year 2023," income but are q estimated labitties, For accounting purposes, the unearned ‘The entity reported profit amounting to How much rental income réported for tax prposes in ‘Az The whole P300,000 rent is reported as rental income in the income ty A mito the year 2022 berause tls already collected by the eny: See tx enity arendy recognized PI 0008 ance accountng. purposes, the re sthee dference that creates future deductible amount Anajsis: Accounting income 2,500,000 Unarortied unearned rent (3007-1007) ___200,000_ (2,700,000 =e > Accounting income < Taxable income Deferred tax asset. > Unearned rent's carrying amount (P200,000) > Unearned rent’s tax base (Zero) > Deferred tax asset ustration 22.4: ‘An entity set up a provision for doubtful accounts ai December 31, 2022. These accounts are actually written The entity reported profit amounting to P500 for the year 2022. @ What amount of income shouid be taxable for the year 2022? =aing loss cor yforwerd san exer ay ico that may be caried forward be ee oeuetons [teen a year ward to red ‘Oe goa | fuse veri Mee table income in a i Uist deductible temporary ferences. a rise ” iferences. sense of tiring thods of Accounting for Temporary Differences 1. Income statement method > This method focuses on timing diferences. I temporary diferénces including timing > Future taxable amounts and future deductible amounts are rences between the carrying and their respective tax bases. > The method required by IAS 12. ‘cantiog Procedures: 1. Determine the taxable income. ‘counting income xX cenmnent ferences Nontaxable income (OX) eledetuctbe expenses Xx Tene subject to tax Pra hear ctferences Ke — rable amounts leductit "eben ete amounts AL oH) XX, ‘ 15312. Determine the current income tax expense, PY Fowas 9 XX ~~ sabe income eee vrircene asia - tM Sustene income tax expense — XX Journal entry: Tncome tax expense XX ‘reometoxpoyane 1 [iGreen x inte ea fx a {pad the BR 3. Determine the deferred tax liability. Future taxable amounts (or taxable temporary differences) yy. Journal entry: Tneome tax expense XX Deferred tax lability bd 4. Determine the deferred tox asset. Future deductible amounts (or deductible temporary differences) xy X: Enacted income tax rate wa Deferred tax asset x Journal entry: Deferred taxasset XK “lncome tax expense 4 ‘ oF Deferred tax asset and liability shall be measured using the tax rte that has been enacted by the end of the reporti to apply to the period when the asset Is real settled. 5. Determine the total income tax expense. Income tax expense ~ current x ‘Add (Deduct): Net deferred tax expense (benefit) _XX(0)_ Total income tax expense pa Note: > Deferred tax lability > Deferred tax asset = Net deferred tax exper > Deferred tax lability < Deferred tax asset = Net deferred tax bens 1154 ‘the company FeVEBed the feline 00,000 befre 1m for the cumere *sgriemaeretlintta Chapter 22, ign tA ed erage, Gee ark Comoany repeating te | punt. 2k income on goverment bonds ert nual premium (Plank Compan | (eis ay ofthis insurance policy) "© we Dee ond surcharges sox famed on Income tax return for per accountng records oo ments made in advance fatal PY or probable losses ro rato te Oe ass waranty payment a colectons fom customers sane exit (at xpd 10 change nthe ate) eqeiz How much i the income subjectto te + 3.2: How much isthe taxable Income? 2: How much isthe current income tax expense? 4: What amount shall be presented as deferred tx bit on Decenber frat amount shall be presented as deferred tax asset on December x ‘#@-6: How much is the total income tax expense? ht: 8,440,000 #2: 7,440,000 Jeeountng income Pemanent cfferences— Nontaxable revenues Interest income on government bonds Norrdeductole exaenses Ufeinsurance premium Tox penalties and surcharges Income subject to tax Temporary differences 9,000,000, (700,000) 140,000 "8,440,000 tals a 020). th Future deciuctiok | Srosdetctbe amounts 100,000 400,000— Chapter 22. emg nn ome, a fi a2 Oe asset > Nonet a B, [SEREBHO na mmm nonercaemnane 2 |, pertteset> Homie ea Ae ta | GrTent income tax expense = 7,440,000 x 30% rate ee = Se ieiac nee “oe ie ss entities are required to a (2 Ctprent tax abity PAY Quatery income taxes, Curent income tax ex = Tota future taxable amount x Enacted in jaments Perse > Quarter = 1,700,000 x 30% et oe ty ee eome tx ity = 510,000 ‘p- Current tax asset (Or repaid income tay raat ’ ome toe exper S < Quartery income tax @A-5: 210,000 Deferred tax asset = Total future deductible emount x Enacted pay | BESTE ase = 700,000 30% Ome at company shal ot assy tered tx tty | Deferred tax asset = 210,000 | » Sere metectin geen Ws rd assets os eae Se © 4-6: 2,532,000 ‘Current income tax exoense 2,232,000 san eeset anc! ibility Ie Net defered tax expense (S107 2107) "300,000 Cart mtx ate ad aby can be ose ont ‘otal income tax expense 2532,000 OTe ent PS 2 eset eo he Tetoe est Sat ta sin cis tak le Nanas 2 . bana a aepe"what amount shall be presented as deferred fax Hable sete te ultaneousl, ‘sale the ant ana |» December 337 o 2. What amount shall be presented as deferred tax asset etered tax asset 2 December 31? on) beret acl ele: 3. How much is the total income tax expense? > Exception | 1h deferred tax asset end tabi relat te income anes eve | the same tex author steerer re taxable amount x Enacted income tac ie 0x 35% | 2. The company has a legal enforceable right to set off @ curent tax asset agai 2. 245,000 Deferred tax asset = Total future deductible amount x Enacted income tax rate Deferred tax asset = 700,000 x 35% Deferred tex asset = 245,000 3. 2,582,000 | Curent income tax expense (7.440 x 30%) 2,232,000 | Ade: Net deterred tax expense (5957 ~ 2457) '350,000 See ete taxes that are recognized outside | Total income tax expense 2.582,000 1xes recognized in other comprehensive income: ¥ Revaluation of PPE. ¥ Exchange differences arising on the transition of the financial statements ofa foreign operation. | Mate: Curent income tax expense is always based on the current income Current asset. (b) Taxes recognized in equity 1157> Interperiod tax allocation isthe recognition of deferrey aby. Chapier 22: Heating Adustment 10 the opening balangs™ me comings ealing Fam change ng, a or correction of errors. ‘component of a compound financial 1158 on initial recognition of sy pa insane "ase y a Staten 22, eereases 9 fo tase FINANCIAL ACCOUNTING AND RePR rg ‘ Taxab a fe income for a petiod determined in 2 shed fx 2utores Upon whch Tee ee te nde een none vals A (Recounting income subject to tax. 8 encom. & et income. tis the income for @ petiod before deduct 2. A accounting income. Taxable income. Gross income. D. Net income. ng tx expense, Table Income oF @ corporation dfs tom pretax tara name because of Permanent Temporary differences differences No No A a No Yes c Yes Yes b, Yes No 4 In accordance with PAS 12, it is the total amount inced in the determination of profit or loss for the period. e tax expense, D. Deferred tax benefit In accordance with PAS 12 paragraph 5, this is the amount of nce taxes payable/recoverable in respect of the taxable profs for 2 pero A. Current tax expense. 8. Deferred tax expense. Income tax expense D. Deferred tax benefit. Sis the amount of income tax payable in respect of bl come Current tax expense. Tota income tax expense. Deferred tax expense. Deferred tax benefit. ‘ 1159wy erenerich of te folowing items do not have future tax cop A temporary difference occurs’ when a revenue item Is reported forty purposes in a period ‘After itis reported in panife insurance premium paid and the entity is the benef insurance policy. ey rr 6 um pln he SY oh ee, te a c for surcharges for Violations of yg B. butions in excess of tax limitation, Choices A, C, and D. ‘These are differences that will result in future tax determining taxable income of future periods. A. Temporary differences B. Taxable temporary differences: C._ Deductible temporary differences Permanent differences He amc 4 ‘These are aifferences that result in future deductible ay determining taxable income in future periods. TUE, ‘A. Taxable temporary differences B. Deductible temporary afferences Taxable temporary and permanent differences D. Deductible temporary and permanent differences D. All of these will result in a temporary difference. 1160 a e 4B jpvecountin 7 Capen 20, ‘the following differences Aerontg on 9, nih efpenses or losses thet are deat tre taney 1 jpaccounting income, before they are recognise tbe ater they are recognizes 5 OF losses that are de hat ae taxable before they ave ‘ecognizes Revenues or gains that are taxable ater © after they are recognized i ognized in we Seounting income. ic of the following diferences would reut in fre deuce amount? TL. Expenses or accounting incor eae a Wy.» Revenver Ogun tht we ate te thea freuen they ec in A Land IIL B, TandIv. © Wand m1. D. Wand Iv. Which of the fotlowing would res in repartg 2 dtered ati? A. Interest ids. "a rf ranty expense. Excess of accounting depreciation over tax depreciation. D. Excess of tax dé tion over accounting deprecation. E. Subscription received in advance. A 4 on equity investment, Excess tax depreciation over accounting depredation D. Rent paid in advance. E.Rent received in advance. 1161& 1162 * Clapton 22, 16, Statement 1 Examples of tenable temporary ft ne Scptons eee nonce hd advance ia ‘statement II: Taxable temporary differences will result in trade faure years when the related assets are recovered, Bein |A.. Statement Is tue and Statement IL is false B._ Statement [is false and Statement ITis true, CC. Both statements are true. D._ Both statements are false. 17, Statement I: Permanent differences do No give rise to ft ee statement 1: Congas mst cnr present erated change sata cece nae yrs en ceteris te ae ewsrg toe eres. : ‘A. Statement Is true and Statement Il is false. 8, Statement I's false and Statement IT is true. CC. Both statements are true. D. Both statements are false, Deferred Taxes the deferred tax consequence attributable to a taxable tempura rence Current tax abilty 19, Itis the deferred tax consequence attributable to a deductible tempucry “ference and operating loss carry forward. ‘A. Current tax lability 8. Current taxasset Deferred tox ability DL Deferred tax asset 20. A deferred tax asset is recognized for deductible temporary differerces and operating loss cary forward when i [Ris probable that taxable income will be against which the de tax asset can be used. ae 8. Ils probbl that aceounting income wil be availble gas lefered tax asset can used, Ris posse thet taxable income wil be available against whet p,_ feted tax asset can be used, 1s posse hat eccountng incon wl be avilable ag the defered tax asset can be used o 1163 — income t8x amount on the balance shee U3 tO calculate robable that:a future tax rate ere, eet the ars kel that future tn al v: ered act = mm ree future tax rates have been e he curent ee eh et hace Cate Ho t ‘ax rate wi De tax rate. De less than the Curent red tox expense wil be the pa mates cp te 12x asset mi > Solance of deferred tax abit, “5 us the increase in . erease In balance of deferred tx iti ed tax asset. MY minus the Increase in © of deferred tx asset pus the of deferred tax liability. lUS the increase in balance , decrease in balance Of defered tax ste minus the nease balance of deferred tax liability sa onto oft brs be er a cane me IO glabra ere iy, I i creeistment fe aerettn a Ete egaiactrnent of ay re ts edicoinis D. only note to the financial statements. 24, Statement I: A deferred tax asset represents the increase in taxes refundable In future years as 2 result of deductible temporary dferences esting at the end of the current year Statement II: A company should add a decrease in a deferred tax lablity to ‘neame tax payable in computing income tax expense. ‘A. Statement Is true and Statement I is false. Statement Ils false and Statement Ils tue. Both statements are true. Both statements are false. nandal Statement Presentation Deferred tax assets and shall not be cscounted, Tax assets and liabilities shall presen separately fom ther asses ‘and liabilities in the statement of financial postion. rent When an entty makes a dstnction between curent and nonce sets and liabilities, it shall dasiy defered tx ase. 8 noncurrent. D. All of these statements are correct. 8. © D. ! 35 Wich statement are correct concering tases ad ites? 8 «‘ Chapter 22; a atyeurend Mobo had a dled ax tag a, ‘etorred tox asset, that is expected to reverse in the Nt cea, Witich of the following should be reported in the stapest®S®auent? te position at year-end? *MENt of, ng seine deerred tox i 2 Theoret tan aby 03 2 The excess ofthe deferred tox ebity over he 2 noncurrent ibility. oeFred a The excess of the deferred tax lability over the deferreg = 2esrent fab mae, Interperiod and Intraperiod Tax Allocation netiod no the olloeston of Income "2X exPeNSe sng ty Jefous tems of reome or other sources that brought abd Retained earings. 5. Inerperod tox alocation. . nroperted tax allocation D. Income tx payable. te txation author, a ‘k. Satement I's tue and Statement Iisa # A Gatement1is false and Statement gg Both statements are true © oth statements are fase, : 28, Interperiod tax allocation results in 2 deferred tax lability from ‘A. an income Item rartilly recognized for financial purposes tu recognized for tax purposes in any one year. uly 8. the emount of deferred tax consequences attributed to tempor differences that result in net deductible amount in future yess *” &anincome item fully recognized for tax and financial purpossin any fone year. . the amount of deferred tax consequences attributed to temporay differences that result in net taxable emounts in future years, 29, Interperiod income tax allocation procedures are appropriate when ‘A. an extraordinary loss will cause the amount of income tax expense to be greater than the tax on ordinary neti C. differences between net income for tax purposes and finan reporting occur because tax laws and financial accounting principles donot concur onthe items to be recognized as revenue and expense . differences between net income for tax purposes and franc reporting occur because, even though financial accounting prince and tax laws concur on the item to be recognized as revenues 4 ‘expenses, they don't concur on the timing of the recognition 1165 1164 al aChapter 22: SUGGESTED KEY ANSWEI me, |m|o\o|o2|0|>|o2|c2}m|>|>\c\a|> lo} \o|o}>|o}>|o/e\0|>\ola]n}e 116 Chopin 2, IAL ACCOUNTING tn fos FINANC! IG AND REPORTING Phowrem, 7 0.00 al a ; sales income in excess of taxahie” 200,000 2,600,0 a 30% La reas compute for te folowing i Gorred tax asset at yeal set eferred 1,200,000 30% 360.000 00,000 in exces of taxable 2,500,000 Total future 3,400,000 XTax rate 30%. Deferred tax liability 7.020,000 1167iis ag ee eh in Chapion 22. 22-2 Answers & Solutions Guide“ bn Yate Yay, 3. ANSWER: C 3,400,000 Fg 0 EER: C aa Future taxable amount (1 300,000) Se = Taxable income x Cure Shae css Serta snare oe, i aepane = Batcos Deferred tax expense sa0.c00 aie : ane future deductle amount, the es amount 4,000,099 Note: I tresuted to 2 net be de suetbe amount _ (on see taxa me | et ee ee eR: D Max rate ae cantata pense (BH x 30%) 2,400,000 = ga expense 240,000 Care co: Defered tx enense (Benefit) __'660,000 peter , Total tax expense 3,060,000 penned et fir ee maa, ee iq Sheet Method si sine jing difference Between the book bag ga— ANSWER: B Aeearon Senter 202 wine Nea | tt ense sae te ree: Deere txoxpense (met) “pany carrying Tax ‘expense. py ‘Amount Base ‘ta ta 2ade.o0n 1,000,000 : jroBLEM 22-3 Balance Sheet Method tigation amy 200000 = PiEeret 31, 2022, the accounts of ROC Ge, Fave We Bae Tae 2 art PUPOSES, except or the folowing ris expected thatthe ligation labty wil be sted in 2023. Te deen Tis expected eal rest In taxable amounts of PSO0,000 in 20a e% caring aniant. Teche 00,0 2024, 4,000,000 : 15,000,000 P120000 “The enty has 2 taxable income of P7,000,000 In 2022 and Is expected o he 2000000 : taxable income in each of the following in each of the following 2 years. The tax rate is 30%. 'n Jawery 2022, the’ entity incurred cost of 6,000,000 in relation to the ent of a comouter software product. The software cost was appropriately aati and amortized over 3 years fr accourting purposes sng Svat We 5. What is the current tax expense? was expensed in 2022 for tax purposes. A. 900,000 2,100,000 BR 4 D, 2,200,000 The equipment was acquired on January 1, 2022 for P20,000,000. The useful ife . {s¢ years with no residual value. The equipment is depreciated using the straight 6. What is the deferred tax expense? ‘accounting purposes and sum-of-the-years’ digits (SYD) for tax purposes. A Zero c. 240,000 B. 60,000 D. 300,000 ‘In January 2022, the entity entered into an agreement with the employees to ‘ole heath care berets. The cost of such plan for 2022 was P2,000,00 was 7. What is the total tax expense? %oued as expense in 2022 for accounting purposes. However, health care A. 2,240,000 2,430,000 befits are deductible for tax purposes only wnen acl ai. ® 240,000 D, 3,230,000 ‘a that Accounting income for 2022 is P13,000,000. The tax rate s 30% and 8 no deferred taxes on January 1, 2022. 1168 1169aa equired: Compute for the following= eae erent tax expense for 2022. orem 3 600,000 & 3Sitom —&._S.seco0n __eferred tax iabilty on December 31, 2022, 2 A Zero 1,200,000 B50,000 5. oeo00 ._etered tax astet on December 31, 2022, 2 A C. 800,000 Zero B, 600,000 . 900,000 4, Deferred tax expense for 2022. A Zero 1,500,000 & 4,200,000 D. 2,100,000 5, Total tax expense for 2022. A Zero c._3,600,000 8. 2,400,000 B. 3,300,000, PROBLEM 22-3 Answers & Solutions Guide ‘1. ANSWER: A orrving Tax ‘amount base Computer software cost 4,000,000 ; Equipment 415,000,000 P 12,000,000 ‘Accrued lablity-health care 2,000,000 ° Accounting income 13,000,000 Less: Future taxable amount (4M + 3M) (7,000,000) ‘Add: Future deductible amount —2,000,000_ Taxable income 8,000,000 x: Taxrate 30% Current tax expense 72.400,000 Future taxable amount arises from the following: ¥ Accounting income > Taxable income ¥_Asset’s carrying amount > Assets tax base ¥Lability's carrying amount < Liability’ tax base Future deductible emount arises from the following ¥ Accounting income < Taxable income Y_Asset’s carrying amount < Asset’ tax base -Uablty’s carrying amount > Liability’ tax base Chapen 22. OH by Jey —— FMEA, (4.00000) (2,000,009, 200,000 OT Chapten 22, 1 pee en: 8 ANSEF re deduce anc 3g 00 00 ane ee aCe te ae wane eR: C amma tenes ei acint (eon Mn expense = Lg iSWER: D swan? 2,400,000 nett x expense 150,000. cs i 3.900.000 gM 22-4 Current Tax Lieiey ROBLES reported pre-tax anal RCOne Wt ROB Deon of Income taxes the Following data were gate OE er edu for tx pUose cence fOr mn exes of depeci rector book purposes deprecon teen mace curing 2002 ected tax rate ‘what amount shall be reported as current tax liability? ‘A 42,500 70,000 D. 78,750 175,000 | depreciation me ‘came tax expense - 2022 sss Tax payments already made during 2022 Current tax liability a7Chapien 22: PROBLEM 225 Croton and Revers of Temporary if aa Ea seen ae ‘Situation no. 1 Bihiatioor hes one temporary difference at the end of 2022 4 Gouse taxable amounts of 1,100,000. in 2023, 1, 1,300,000 in 2025. The entity's pre-tax financial income for 202, nd the tax rate i 2596 forall years. There are n0 deferred tax acs atthe beginning of 2022. 4. Compute for the current tax expense for the year 2. Prepare the journal entry to record income. tay 2. Pen pom, . Asame the pre-tax financial Income for the 3+ Joo00 000, compute forthe taxable income for tea 4. Proporethe Journal entry to record income tar non. 2023 Pense fy Situation no. 2 Path Corp. has one temporary difference at the end of 2022 that wi ‘cause deductible amounts of 1,100,000 in 2023, 1,200,000 il revere ay at the beginning of 2022. The entity expects profitable operations to contin the future. 1. Compute for the current tax expense for the year 2022, Prepare the journal entry to record income tax expense fr 2022. ‘Assume the pre-tax financial income for the year 7,000,000, compute for the taxable income for the ye zi 3. 4 Prepare the journal entry to record income tax expense for 2023. PROBLEM 22-5 Answers & Solutions Guide 6,000,000 taxable amount (1.1M + 1.2M + 13M) __(3,600,000)_ ¢ 2,400,000 _ mm tax expense 60,000 2. ANSWER Income tax expense 1,500,000 ‘Income tax payable 600,000 Deferred tax lability (3.66x 25%) 900,000 1172 7.20 lao. ao S.100.009 no ure enable amount thet was ‘come fected from 2022 eo Sit ton | Ee ig ANSWER. (7M x 25%) | gece, ey Pham tax payable (8. ) aes en aie pote cefored '” 2022 wil reverse starting 2023 oat giver: P2,400,000 et fan 6,000,000° ature deductible amount (1.2M-#1.2M-+1.3m) Seog ei — 3,600,000 ‘ Toave income 9,600,000, rer es mae = Current tax expe" 2,400,000 Defred tax asset (3.6M x 25%) 900,000 emcees acon | ete: The future deductible amount that was added in 2022 taxable income ll | tame deductible in the future yeas, thus, wil decrease the table income of | elitr years, 4. ANSWER Teome tax expense (7 x 25%) 1,750,000 Deferred tax asset (1.1M x 25%) 275,000 ‘come tax payable (5.9M x 2596) 1,475,000 Net: The deferred tax asset that eros in 202 wil reese tating 2023 1173Chapin 22. Ae Esgense 324,000 tae nw pS par 324,000 re ysweR: P120,000 Jeet tempo ces ae expected to reverse inthe flo The tm vcomporany Deductible temporary"? Pater, “Table temooray fiance a 100,000 = 00/000 Or ansWER: 66,800 a ee ore 32%) 200,000 es (OT 3086) Or ~ The enacted tax rates for 2022 though 2025 areas folows: | Eipedtax asset 22/34/2022 56a00- Year: Enacted tax rates: i cont 66,800 a 22,400) 20227 ‘97,600 How much is the deferred tax How much is the deferred tax How much is the deferred tax ‘on December 31, PROBLEM 22-6 Answers & Solutions Guide 1, ANSWER: P1,080,000 22,400 (350,000) ote: _ 850000) T a taxable temporary di ‘ereases the income tax expense f 1,080,000 2. ANSWER: P324,000 Current income tax expense = Taxable income x Current tax rate Current income tax expense = 1,080,000 x 30% Current income tax expense = 324,000 1174Chasen 28 et tag WER: P34,800 Git 66,800 mu, eterrd tax asset, 12/31/2022 amount reversed in 2023 —(32,000)_ Deferred tax asset, 12/31/2023 34,800 ‘Alternative solution: 2024 (60T x 3486) 20,400 2005 (407 x 36%) —14.400_ Deferred tax asset, 12/31/2023 34,800 ‘Journal entry: Tncome tax expense 32,000 Defered tax asset Note: If @ deductible temporary di reverses during a g Period. PEC being 34,800 20,400) 14,400 ‘Summary on cretion and reversal of temporary differences: reation Reversal Future taxable amount = 1DTLIITE—{DTL ITE. 1DTA ITE - OTA ITE DTA™ Deferred Tax Asset ITE Income Tax Expense Note: ‘+ There is a direct relationship between deferred tax labilty and ince tx “There isan inverse relationship between deferred tax asset and incone | 1176 jas sot rate for the year 2022 ete or able YESS 2023 omarts iL How much i the taxable income? How much se ctrrent income tax opener what amount shall be i 3 pomber 31? sented as deferred tax tablity on Rar amount shall be presented * December 31? 8 deferred tax asset on 5. How much Is the total income tax expense? PROBLEM 22-7 Answers & Solutions Guide 1 ANSWi A000. 13,500,000 (2,050,000), ‘Future taxable amounts ‘kStional depreciation (4.05M~2.1M) (1; Prepaid rent 2 ANSWer R: P3,348, cn AAR: 3,208, 00 CurentNome tax expense = income tax expense- Pe Caper 2: Heratng bn, ape .usWER: P892,500 ea 22 vetcla em = Tatars taxable amount x Enacted future tay a = rota tax expense For the ctment year, Ae Ia Yay tEttabiiy = 2,550,000 x 35% te TB :09 ete ae gx aby = 882,500 «4 ANSWER: P367/500 ANSWER fescble aroun ENaC fre ered et = 1030000» 35% ae re a Se 30) ttt cae te el 1 5. ANSWER: P3,873,000 oe ue a1 eeu mame tx empense 3; eau (= 1S re re x expense (82.500 367.500) _* 48 ei ieee omout (234 207) ‘Total income tax expense 373.009- pS a (operating less carfonand), — 2a PROBLEM 22-8 Comprehensive st of operations Is an operating loss for [ROT Co. started to manufacture in 2022 copy mach ent sis Ie ey agi evra when ea sul a Tey hen talent payments ae eel ae Pe eed reeves of P0000 for ancl 2 ot me Piso borax purposes. aes _ The entity queranted the copy machines for 2 years. Waranty cage | al fare deduce amount 2,909,000 eet te seo base or ancl acswunting purpeses amc | re 7% erreaes Waray cieret accu 2008 8 PLatbOn' et me | Rredtax asset ma 500,000 of warranty is paid in 2022. {In addition, during 2022, 500,000 interest, net of 20% final income tax, was received end earned and P100,000 insurance premium on life insurance poi that covered the life of the president was paid. The entity is the beneficiary of te policy. 4 ANSWER: C Pretax accountng income in 2022 was P2,000,000. Any operating loss for 212 | rent tax expense ‘ will be carried to 2023. The tax rate is 30%. ‘Increase in deferred tax liability 1,350,000 - ss: Increase in deferred tax asset _(670,000) Required: Compute forthe following Total tax expense ‘480,000 1. Current tax expense for the current year. A Zero 480,000 ty wil sti report an income tax expense even if the cue ax 8. 270,000 D. 870,000 © because of the future taxable amounts that aose dung the 2. Deferred tax asset on December 31, 2022. A Zero 600,000 8. 330,000 D. 870,000 3. Deferred tax liability on December 31, 2022. ‘A. 600,000 1,350,000 8. 1,140,000 D. 1,950,000 p 1178 1179 oe eae ——E———