CHAPTER17

ACCOUNTI
NGFORI
NCOMETAX

TECHNI
CALKNOWLEDGE

Toknowt
hedi
sti
nct
ionbet
weenaccount
ingi
ncomeandt
axabl
eincome.

To dist
inguish permanent dif
fer
ences and t
empor
ary di
ff
erences bet
ween
accountingincomeandtaxablei
ncome.

Toi
dent
if
ytempor
arydi
ff
erencest
hatr
esul
ttoadef
err
edt
axl
i
abi
l
it
y.

Toi
dent
if
ytempor
arydi
ff
erencest
hatr
esul
ttoadef
err
edt
axasset
.

Toknow t
her
ecogni
ti
onandmeasur
ementofdef
err
edt
axassetanddef
err
edt
ax
l
iabi
l
it
y.

Toknow ther
ecogni
ti
onandmeasur
ementofcur
rentt
axassetandcur
rentt
ax
l
iabi
l
it
y.

Todi
sti
ngui
shi
nter
per
iodt
axal
l
ocat
ionandi
ntr
aper
iodt
axal
l
ocat
ion.
I
ntr
oduct
ion
Def
er r
edtaxaccount
ing i
sappl
i
cabl
etoal
lent
it
ies
,whet
herpubl
i
cornonpubl
i
c
ent
it
ies.

Apubl
i
cent
it
yisanent
it
y:

a.Whoseequi
tyanddebtsecur
it
iesar
etr
adedi
nast
ockexchangeorover
-the-
count
ermar
ket

b.Whoseequit
yordebtsecur
it
iesar
eregist
eredwithSecur
it
iesandExchange
Commissi
oninpr
epar
ati
onforsal
eofthesecuri
ti
es.

Account
ingI
ncome
Accounti
ng Incomeorfinanci
ali
ncomei
stheneti
ncomef
ort
heper
iod bef
ore
deduct
ingincometaxexpense.

Thi
sisthei
ncomeappear i
ngonthetr
adi
ti
onali
ncomest
atementandcomput
edi
n
accor
dancewit
haccount
ingst
andar
ds.

Taxabl
eIncome
TaxableIncomei
stheincomef
ortheper
ioddet
ermi
nedinaccordancewi
thther
ules
establ
ished byt
hetaxati
onaut
hori
ti
esuponwhichincomet axesarepayabl
eor
recoverabl
e.

Taxableincomeist
heincomeappear
ingont
hei
ncomet
axr
etur
nandcomput
edi
n
accordancewit
htheincomet
axlaw.

Taxableincomemaybedef i
nedalsoastheexcessoft
axabl
erevenueovert
ax
deducti
bleexpenseandexempt
ionsfort
heperiodasdefi
nedbytheBureauof
I
nternalRevenue.
Di
ff
erencesbet
weenaccount
ingandt
axabl
eincome
Di
ffer
encesbet
weenaccount
ingandt
axabl
eincomear
ise.Suchdi
ff
erencesmaybe
cl
assi
fi
edint
otwo,namel
y:

a.Per
manentdi
ff
erences

b.Tempor
arydi
ff
erences

Per
manentdi
ff
erences
Permanentdif
ferencesar
eitemsofr evenueandexpensewhichar
eincl
udedin
ei
theraccount
ingincomeort
axabl
eincomebutwil
lneverbei
ncl
udedi
ntheot
her
.

Actual
ly,per
manentdi
ff
erencesper
tai
nto nont
axabl
erevenueandnondeduct
ibl
e
expenses.
Per
manentdi
ff
erencesdonotgi veri
set
odef
err
edt
axassetandl
i
abi
l
it
ybecause
t
heyhavenof
uturetaxconsequences
.

Exampl
esi
ncl
udet
hef
oll
owi
ng:

a.I
nter
esti
ncomeondeposi
ts

b.Di
vi
dendsr
ecei
ved

c.Li
fei
nsur
ancepr
emi
um

Whent heenti
tyist
hebenef i
ciar
yofalifei
nsurancepol
icyonanofficeror
employee,t
hepremium pai
dbyt heent
it
yisnotdeduct
ibl
easexpensefortax
pur
posesbutsaidpr
emium isanexpenseforf
inanci
alr
eport
ingpur
poses.

d.Taxpenal
ti
es,sur
char
gesandf
i enondeduct
nesar ibl
e.

Tempor
arydi
ff
erences
Temporar
ydif
ferencesar
edi
ff
erencesbet
weent
hecar
ryi
ngamountofanas
setor
l
iabi
l
it
yandthetaxbase.

Tempor
arydi
ff
erencesi
ncl
udet
imi
ngdi
ff
erences.

Ti
ming di
ff
erencesar
e di
ff
erencesbet
ween t
he account
ing i
ncome and t
axabl
e
i
ncomet
hator
igi
nat
einoneper
iodandr
ever
sei
noneormor
esubsequentper
iods
.

Ti
mingdi f
ferencesar
eit
emsofi ncomeandexpenseswhichareincl nbot
udedi h
account
ingincomeandtaxabl
eincomebutatdi
ff
erentt
imeper
iods
.

Forever
yt emporar
ydif
ferences
,event
ual
l
ythati
tem’
str
eat
mentwi
l
lbet
hesamei
n
account
ingandtaxabl
eincome.

Accor
dingl
y,t
empor
arydi
ff
.gi
ver
iseei
thert
o:

a.Def
err
edt
axl
i
abi
l
it
y

b.Def
err
edt
axasset

Ki
ndsofTempor
aryDi
ff
erences
a.Taxabl
et empor
arydiff
erenceisthetemporarydif
fer
encethatwil
lresul
tin
fut
uretaxabl
eamountindetermini
ngtaxabl
eincomeoff ut
ureperi
odswhen
thecar
ryingamountoft
heassetorli
abi
li
tyi
srecover
edorsettl
ed.

b.Deducti
blet
emporarydi
ffer
enceisthet emporar
ydiff
erencethatwillr
esul
tin
f
utur
ededuct i
bleamountindetermining t
axabl
eincomeoff utur
eper iods
whenthecarr
yingamountoftheassetorli
abi
li
tyi
srecoveredorsett
led.

Taxbase
Thetaxbaseofanass
etorl
i
abi
l
it
yist
heamountat
tr
ibut
abl
etot
heassetorl
i
abi
l
it
y
fort
axpurposes.

Wor dedi
nanotherway,thet
axbaseofanassetorali
abil
it
yist
heamountoft
he
assetorl
i
abi
l
it
yt sr
hati ecogni
zedoral
l
owedf
ortaxpurposes.

Taxbaseofanasset
Thetaxbaseofanasseti
stheamountt
hatwi
l
lbededuct
ibl
efort
axpur
poses
agai
nstf
utur
eincome.

Forexampl
e,i
fan ent
it
yhasappr
opr
iat
elycapi
tal
i
zed P1
,000,
000 assof
twar
e
devel
opmentcost
,thecar
ryi
ngamounti
sP1
,000,
000f
oraccount
ingpur
poses
.

However
,ift
hisamounti
sal
l
owedasaone-ti
mededucti
onfortaxpur
poses
,thet
ax
basei
szerobecauset
heent
ir
eamounti
sexpensedi
nthecurr
entyear
.

Taxbaseofal
i
abi
l
it
y
Thetaxbaseofal
iabi
li
tyisnor yt
mal
l hecar
ryi
ngamountl
esst
heamountt
hatwi
l
lbe
deduct
ibl
efort
axpurposesint
hef
utur
e.

Forexample,i
fanent
it
yhasrecogni
zedanes t
imat
edwar rant
yli
abi
l
it
yofP500,
000,
thecar
ryi
ngamountisP500,
000foraccount
ingpurposes
.

However
,anest
imat
edwar
rant
ycosti
sdeduct
ibl
eonl
ywhenact
ual
l
ypai
d.

Thus,t
hetaxbasei
szer
obecauset
heest
imat
edwar
rant saf
ycosti utur
ededuct
ibl
e
amount.

Def
err
edt
axl
i
abi
l
it
y
Def
erredtaxliabi
l
it
yistheamountofi ncomet
axpayabl
einf
utur
eper
iodswi
th
r
espectt
oat axabl
etemporar
ydi
ff
erence.

A def
err
ed t
axliabi
l
it
yisthedeferr
ed t
axconsequenceat
tr
ibut
abl
eto at
axabl
e
t
emporarydi
ff
erenceorf
utur
etaxabl
eamount
.
Act
ual
l
y,adef
err
edt
axl
i
abi
l
it
yar
isesf
rom t
hef
oll
owi
ng:

a.Whentheaccount
ingi
ncomei
shi
ghert
hant
axabl
eincomebecauseoft
imi
ng
di
ff
erences.

b.Whent
hecar
ryi
ngamountofanasseti
shi
ghert
hant
het
axbase.

c.Whent
hecar
ryi
ngamountofal
i
abi
l
it
yisl
owert
hant
het
axbase.

Account
ingi
ncomehi
ghert
hant
axabl
eincome
Tempor
arydi
ff
erencest
hatr
esul
tinaccount
ingi
ncomehi
ghert
hant
axabl
eincome
i
ncl
udethef
oll
owing:
1.Revenuesandgai
nsareincl
udedi
naccount
ingi
ncomeoft
hecur
rentper
iodbut
aret
axablei
nfut
ureper
iods.

2.Expensesandlossesarededuct
ibl
ef ort
axpurposesi
nthecur
rentper
iodbut
deduct
ibl
eforaccount
ingpur
posesi
nfutureper
iods
.

a.Acceler
ateddepreci
ati
onf
ort
axpur
posesandst
rai
ghtl
i
nedepr
eci
ati
onf
or
accounti
ngpurposes.

b.Devel
opmentcostmaybecapi t
ali
zedandamort
izedoverfut
ureperiodsi
n
det
ermini
ngaccount
ingincomebutdeductedi
ndet er
mini
ngtaxabl
eincome
i
ntheperi
odinwhichiti
spaid.

c.Prepai
dexpensehasal
readybeendeduct
edonacashbasi
sindet
ermi
ning
t
axableincomeoft
hecurr
entper
iod.

Ot
hert
axabl
etempor
arydi
ff
erences
Mostt
axabl
etemporarydi
ffer
encesarisebecauseofdi
ff
erencesi
nthet
imi
ngoft
he
r
ecogni
ti
onofthet
ransact
ionforaccounti
ngandtaxpur
poses .

However
,ther
e ar
e othertaxabletemporar
ydif
fer
encesthattechni
cal
l
yar
e not
t
imi
ngdif
fer
encesbutnever
thelessgi
veri
setodef
err
edtaxl
i
abil
it
y.

Suchot
hert
axabl
etempor
arydi
ff
erencesi
ncl
ude:

a.Assetisreval
ued upwar
d and no equi
val
entadj
ust
menti
smade f
ort
ax
purposes.

b.Thecarryi
ngamountofinvestmentinsubsidi
ary,associ
ateorjoi
ntventur
eis
hi
gherthanthetaxbasebecausethesubsidi
ary,associ
ateorj
ointvent
urehas
notdi
sturbedi
tsenti
rei
ncomet ot
hepar entorinvest
or.

c.Thecostofabusinesscombi
nati
ont
hatisaccount
edforasanacquisi
ti
oni
s
al
locat
edtot
heidenti
fi
abl
easset
sandli
abi
li
ti
esacqui
redatf
airval
ue.

Recogni
ti
onofadef
err
edt
axl
i
abi
l
it
y
PAS12,par
agr
aph15,provi
desthatadef
err
edt
axl
i
abi
l
it
yshal
lber
ecogni
zedf
oral
l
t
axabl
etempor
arydi
ff
erences.

However
,a def
err
ed t
axl
i
abi
l
it
yisnotr
ecogni
zed when t
he t
axabl
etempor
ary
di
ff
erencear
isesf
rom:

a.Goodwil
lresul
ti
ngfr
om abusi
nesscombi
nat
ionandwhi
chi
snondeduct
ibl
e
f
ortaxpurposes.

b.I
nit
ialr
ecognit
ionofanassetorli
abil
i
tyi
nat r
ansact
iont
hatisnotabusi
ness
combinat
ionandaff
ectsnei
theraccount
ingi
ncomenortaxabl
eincome.

c.Undist
ri
butedprofi
tofsubsi
diary,associ
ateorjoi
ntvent
urewhenthepar
ent
,
i
nvestororvent ur
eis ablet o controlthe t
imi
ng ofthe r
ever
salofthe
t
empor ar
ydiff
erence.

Def
err
edt
axasset
Adefer
redt
axassetist
heamountofincometaxrecover
abl
einfut
ureperi
odswi
th
r
espectt
odeduct
ibl
etempor
arydi
ff
erenceandoperati
ngl
osscar
ryf
orwar
d.

I
notherwor
ds,adeferr
edtaxasseti
sthedef
err
edtaxconsequenceat
tr
ibut
abl
etoa
f
utur
ededucti
bleamountandoperat
ingl
osscar
ryf
orwar
d.
Adef
err
edt
axassetar
isesf
rom t
hef
oll
owi
ng: 

a.Whenthetaxabl
eincomei
shi
ghert
hanaccount
ingi
ncomebecauseoft
imi
ng
di
ff
erences.

b.Whent
het
axbas
eofasseti
shi
ghert
hant
hecar
ryi
ngamount
.

c.Whent
het
axbas
eofal
i
abi
l
it
yisl
owert
hant
hecar
ryi
ngamount
.

Taxabl
eincomehi
ghert
hanaccount
ingi
ncome
Tempor
arydif
fer
encesthatwil
lresul
ttotaxabl
eincomehighert
hanaccount
ing
i
ncomebecauseofti
mingdi
ff
erencesi
ncl
udethefol
lowi
ng:

1
.Revenuesandgai
nsareincl
udedi
ntaxabl
eincomeofcur
rentper
iodbutar
e
i
ncl
udedi
naccount
ingi
ncomeoffut
ureperi
ods.

Forexampl
e,rentrecei
vedinadvanceistaxabl
eatt
het
imeofr
ecei
ptbut
def
err
edinf
utureperi
odsforaccount
ingpur
poses.

2.Expensesandlossesaredeductedf
rom accounti
ngincomeofcur
rentper
iod
butarededuct
ibl
ef ort
axpurposesi
nfut
ureperiods.
Fut
urededuct
ibl
etempor
arydi
ff
erences
Fut
urededuct
ibl
etempor
arydi
ff
erencesi
ncl
udet
hef
oll
owi
ng:

a.A probabl
e and measur
abl
el i
ti
gati
on loss i
srecogni
zed f
oraccount
ing
purposesbutdeduct
edi
ndeter
miningtaxabl
eincomewhenactual
l
yincur
red
orpaid.

b.Est
imatedpr
oductwarrant
ycostisrecogni
zedforaccounti
ngpur
posesinthe
cur
rentperi
od butdeducted i
n deter
mini
ng t
axableincome when act
uall
y
i
ncurr
edorpaid.

c.Resear
chcostisr
ecogni
zedasexpenseindeter
mini
ngaccount
ingincome
butnotper
mit
tedasadeducti
oni
ndet er
mini
ngtaxabl
eincomeunti
lalater
peri
od.

d.Animpai
rmentlossi
srecogni
zedf
oraccount
ingpur
posesbuti
gnor
edf
ort
ax
pur
posesunt
il
theasseti
ssold.

e.Doubtf
ulaccountsar
er ecogni
zedasexpenseforaccounti
ngpur
posesbut
deduct
ibl
efortaxpur
posesonlywhenwri
tt
enoffaswort
hless.

Ot
herdeduct
ibl
etempor
arydi
ff
erences
Temporar
ydif
ferencest
hatt echni
cal
l
yarenotti
mingdi
ff
erencesbutnever
thel
ess
gi
veri
setodefer
redtaxassetincl
udethef
oll
owi
ng:

a.Assetisreval
ueddownwar
dandnoequi
val
entadj
ust
menti
smadef
ort
ax
purposes.

b.Thetaxbaseofi nvestmentinsubsi
diar
y,associat
eorj oi
ntvent
ureishi
gher
thanthecarr
yingamountbecauset hesubsidi
ary,associ
ateorjoi
ntvent
ure
hassuff
eredcontinui
nglossesi
ncurrentpr
ioryears.

Recogni
ti
onofdef
err
edt
axasset
PAS1 2,par
agraph24,pr ovidesthatadef
erredtaxassetshallberecognizedf
orall
deducti
bletempor ary di
ff
erences and operat
ing loss car
ryfor
ward when iti s
probabl
ethattaxableincomewi l
lbeavail
abl
eagai nstwhichthedeferredtaxasset
canbeused.
Oper
ati
ngl
osscar
ryf
orwar
d
Operat
ingl
osscar
ryf
orwardi
sanexcessoftaxdeduct
ionsovergrossincomei
na
yeart
hatmaybecarr
iedf
orwar or
dt educet
axabl
eincomeinaf ut
ureyear.

Cert
ainent
iti
esregi
ster
edwit
ht heBoardofInvest
mentsarepermi
tt
edtocarr
yover
netoperat
inglossfortaxpurposessubj
ecttol i
mit
ati
onsoftherel
evantl
aw and
i
mplementi
ngr egul
ati
onsoft
heBoar dofI
nvestments.

Met
hodofaccount
ing
a.I
ncomest
atementappr
oach

Thismethodfocusesi
nti
mingdif
fer
encesonl
yint
hecomput
ati
onofdef
err
ed
taxassetordef
erredt
axl
iabi
l
it
y.

Asthemet hodsuggest
s,ti
mingdi
ff
erencesaf
fectthei
ncomest
atementof
one peri
od and willr
ever
se i
nthe income stat
ementofone ormor e
subsequentper
iods.

b.St
atementoff
inanci
alposi
ti
onappr
oach
Thi
smet
hodconsi
der
sal
ltempor
arydi
ff
erencesi
ncl
udi
ngt
imi
ngdi
ff
erences.

Therearetemporar
ydi f
ferencesthataf
fectthestat
ementoffi
nanci
alposi
ti
on
onlyandtheref
oretechnicall
yarenottimingdiff
erencesbutnonet
hel
essare
recogni
zedincomputingdef err
edtaxassetorli
abil
i
ty.

Account
ingpr
ocedur
es
The recognit
ion ofa defer
red t
ax assetordef
err
ed t
ax l
i
abi
l
it
yis known as
i
nter
periodtaxall
ocat
ion.
1
.Det
ermi
net
he“
taxabl
eincome”

Thet
axabl
eincomemul
ti
pli
edbyt
het
axr
ateequal
sthecur
rentt
axexpense.

I
ncomet axexpense xx
Incomet axpayabl
e xx
 Cur
renttaxexpenseistheamountofi
ncometaxpai
dorpayabl
eforayearas
det
ermined byapplyi
ng t
heprovi
si
onsoftheenact
ed t
axlaw t
othetaxabl
e
i
ncome.

2.Det
ermi
net
he“
taxabl
etempor
arydi
ff
erences”

Theamountsoftaxabletempor
arydi
ff
erencesmul
ti
pli
edbyt
het
axr
ateequal
s
thedef
err
edtaxl
i
abili
ty.

I
ncomet
axexpense xx
Def
err
edtaxli
abi
l
it
y xx

3.Det
ermi
net
he“
deduct
ibl
etempor
arydi
ff
erences”

Theamountofdeducti
blet
empor
arydi
ff
erencesmul
ti
pli
edbyt
het
axr
ateequal
s
thedef
err
edtaxasset
.

Def
erredt
axasset xx
I
ncometaxbenef
it xx

The“
incometaxbenef
itaccount”r
educesthecur
rentt
axexpensef
ort
heyear
andi
sadeducti
onfr
om curr
enttaxexpense.

Thedef
err
edt
axassetmaybecr
edi
teddi
rect
lyt
o“i
ncomet
axexpense”
.

4.Thetotali
ncomet axexpensefortheyearisthecurr
enttaxexpensepl
usthe
def
erred t
axexpense ari
sing f
rom taxabl
etemporar
y dif
ferencesmi
nus t
he
i
ncomet axbenef
itar
isi
ngfr
om deducti
bletempor
arydi
ff
erences.

Thetot
alincometaxexpensefort
heyearisequaltotheaccounti
ngincome
subj
ecttotaxmult
ipl
i
edbyt hetaxrat
e,assumi
ngther
eisnof utureenact
ed
i
ncometaxrate.

I
l
lust
rat
ion1–Def
err
edt
axl
i
abi
l
it
y
I
n201 9,anentit
yreport
edinaccount
ingincomeagr ossprof
itoni
nstal
l
mentsal
eof
P1,000,000butnotintaxabl
eincome.Thistempor
arydiff
erenceisexpect
edtobe
report
edintaxabl
eincomeequall
yin2020and2021 .Theincometaxratei
s30%.
 2019 2020 2021
Accounti
ng
4,
000,
000 5,
000,
000 7,
000,
000
i
ncome
Taxabl
eincome 3,
000,
000 5,
500,
000 7,
500,
000

Si
ncet
hetempor
arydif
fer
encer
esul
tst
oahi
gheraccount
ingi
ncomei
n201
9,t
her
e
sadef
i err
edtaxl
i
abil
i
ty.

Jour
nal
ent
ri
esi
n2019
1
.Tor
ecor
dthecur
rentt
axexpense:

I
ncomet axexpense 900,
000
Income t ax payabl
e (
30% x
900,
000
3,
000,000)

2.Tor
ecor
dthedef
err
edt
axl
i
abi
l
it
y:

I
ncome t ax expense (
30% x
300,
000
1
,000,000)
Defer
redt
axli
abi
li
ty 300,
000

Thei
ncomet
axpayabl
eiscl
assi
fi
edasacur
rentl
i
abi
l
it
y.

Thedef
err
edt
axl
i
abi
l
it
yiscl
assi
fi
edasnoncur
rentl
i
abi
l
it
y.

I
ncomest
atementpr
esent
ati
onf
or2019
I
ncomebef orei
ncomet ax 4,
000,
000
I
ncomet axexpense:
Currenttaxexpense 900,
000
Deferred t
ax
1
,200,
000
expense 300,
000

NetI
ncome 2,
800,
000
Obser
vethatt
heaccounti
ngi
ncomesubjectt
otaxofP4,000,
000multi
pli
edby30%
equal
sP1
,200,000,whi
chist
hetot
ali
ncometaxexpensefort
heyear
.

Jour
nal
ent
ri
esi
n2020
1
.Tor
ecor
dthecur
rentt
axexpense:

I
ncomet axexpense 1
,650,
000
Income t ax payabl
e (
30% x 1
,650,
00
5,
500,000) 0

2.Todecr
easet
hedef
err
edt
axl
i
abi
l
it
y:

Deferredt
axl
i
abil
i
ty 1
50,
000
Income tax expense (
30% x
1
50,
000
500,000)

I
ncomest
atementpr
esent
ati
onf
or2020
I
ncomebef oreincometax 5,
000,
000
I
ncomet axexpense:
Curr
enttaxexpense 1,
650,
000
Decreaseindefer
redt
axl
i
abi
l
it
y (150,
000) 1
,500,
000

NetI
ncome 3,
500,
000

Jour
nal
ent
ri
esi
n2021
3.Tor
ecor
dthecur
rentt
axexpense:

I
ncomet axexpense 2,
250,
000
Income t ax payabl
e (
30% x
2,
250,
000
7,
500,000)

4.Todecr
easet
hedef
err
edt
axl
i
abi
l
it
y:

Def
erredt
axl
i
abi
li
ty 1
50,
000
I
ncomet
axexpense 1
50,
000
Thedefer
redt
axli
abi
li
tyonDecember31,2021hasazer
obal
ancebecauset
he
tax
abl
etempor
arydi
ff
erencei
snowful
l
yrever
sed.

I
ncomest
atementpr
esent
ati
onf
or2021
I
ncome bef ore i
ncome
7,
000,
000
tax
I
ncomet axexpense:
Currenttaxexpense 2,
250,
000
Deferred t
ax
2,
100,
000
expense (1
50,
000)

NetI
ncome 4,
900,
000

I
l
lust
rat
ion2–Def
err
edt
axasset
In2019,anenti
tyreceivedanadvancerentalpaymentofP600, 000 whi
chwas
subj
ectt
otaxbutnotreport
edi
naccounti
ngincomeuntil2020.Theincometaxr
ate
i
s30%.

Thei
ncomest
atementandt
axr
etur
nshowedt
hef
oll
owi
ng:

2019 2020
Accounti
ngincomesubj
ectt
otax 5,
000,000 7,
000,
000
Taxabl
eIncome 5,
600,000 6,
400,
000

Si
ncethetemporarydi
ff
erencer
esul
tst
oahi
ghert
axabl
eincomei
n201
9,t
her
eisa
def
err
edtaxasset.

Jour
nal
ent
ri
esi
n2019
1
.Tor
ecor
dthecur
rentt
axexpense:

I
ncomet axexpense 1
,680,
000
Incomet axpayabl
e(30% x5,
600,
000) 1
,680,
000
2.Tor
ecor
dthedef
err
edt
axasset
:

Deferredt
axasset 1
80,
000
Income t ax benef
it (
30% x
1
80,
000
600,000)

Thedef
err
edt
axasseti
scl
assi
fi
edasnoncur
rentasset
.

I
ncomest
atementpr
esent
ati
onf
or2019
I
ncome before i
ncome
5,
000,
000
t
ax
I
ncometaxexpense:
Cur
rentt
axexpense 1,
680,
000
I
ncometaxbenefi
t (180,
000) 1
,500,
000

NetI
ncome 3,
500,
000

Jour
nal
ent
ri
esi
n2019
1
.Tor
ecor
dthecur
rentt
axexpense:

I
ncomet axexpense 1
,920,
000
Income t ax payabl
e (
30% x
1
,920,
000
6,
400,000)

2.Todecr
easet
hedef
err
edt
axasset
:

I
ncomet
axexpense 1
80,
000
Def
err
edtaxasset 1
80,
000

I
ncomest
atementpr
esent
ati
onf
or2020
I
ncomebef orei
ncomet ax 7,
000,
000
I
ncometaxexpense:
Cur
renttaxexpense 1
,920,
000
 Decr
easei
ndef
err
edt
axass
et (1
80,
000) 2,
100,
000

NetI
ncome 4,
900,
000

I
l
lust
rat
ion3–Def
err
edt
axassetandl
i
abi
l
it
y
Anent
it
yrepor
tedt
hef
oll
owi
ngf
ort
heyearendedDecember31
,201
9.

Account i
ngi ncomeperbook 6,
000,
000
Nondeduct ibleexpenses 500,
000
Nontaxabler evenue 300,
000
Doubtfulaccount s 200,
000
Esti
matedwar rant
ycostt hathadbeenrecogni
zed
asexpense
i
n201 9whent hepr oductsal
esweremadebut
i
s
deductibl
ef ort
axpur poseswhenpaid 400,
000
Account i
ngdepr eciat
ion 600,
000
Taxdepr eciati
on 800,
000
Gross income on i nstal
lmentsaleincluded i
n
account i
ngincome
buttaxableonlyin2020 1
00,
000
I
ncomet axr at
e 30%

Comput
ati
on
Accounti
ngincomeperbook 6,
000,
000
Permanentdif
ferences:
Nondeducti
bleexpenses 500,000
( 300,
000
Nont
axabl
erevenue )

Accountingi ncomesubj ecttotax 6,

200,
000
Deductiblet empor arydif
ferences:
Doubtful account s 200,
000
Esti
mat edwar r
antycost 400,
000
Taxabletempor arydiff
erences:
Excesst axdepr eciat
ion ( 200,
000
 )
(1
00,000
Gr
ossi
ncomeoni
nst
all
mentsal
e )

Taxabl
eincome 6,
500,
000

Thepermanentdi
fferencesdonotgi
veri
setodef er
redtaxassetordef
err
edt
ax
l
iabi
l
it
yandthusel
i
mi natedfr
om t
her
epor
tedaccounti
ngincome.
I
n otherwords,t
he account
ing i
ncome subj
ectt
otaxmustexcl
ude per
manent
di
ff
erences.

Jour
nal
ent
ri
esi
n2019
1
.Tor
ecor
dthecur
rentt
axexpense:

I
ncomet axexpense 1
,950,
000
Income t ax payabl
e (
30% x
1
,950,
000
6,
500,000)

2.Tor
ecor
dthedef
err
edt
axasset
:

Def
erredt
axasset 1
80,
000
I
ncometaxbenef
it 1
80,
000

Doubt
fulaccounts 200,
000
Est
imat
edwar rant
ycost 400,
000

Tot
aldeduct
ibl
etempor
arydi
ff
erences 600,
000
Mult
ipl
yby 30%

Def
err
edt
axasset 1
80,
000

3.Tor
ecor
dthedef
err
edt
axl
i
abi
l
it
y:

I
ncomet
axexpense 90,
000
Def
err
edtaxli
abi
l
it
y 90,
000
Excesstaxdepr
eci
ati
on 200,
000
Grossincomeoninst
all
mentsal
e 100,
000

Tot
altaxabl
etempor
arydi
ff
erences 300,
000
Mult
ipl
yby 30%

Def
err
edt
axl
i
abi
l
it
y 90,
000

I
ncomest
atementpr
esent
ati
onf
or2019
I
ncome before i
ncome
6,
000,
000
t
ax
I
ncometaxexpense:
Cur
rentt
axexpense 1,
950,
000
(180,
000
I
ncometaxbenef
it )
Def
err
ed t
ax
1
,860,
000
expense 90,
000

NetI
ncome 4,
140,
000

Obser
vet heaccount
hatt ingincomesubj
ectt
otaxofP6,200,000mult
ipl
i
edby30%
equal
sP1
,860,000whi
chisthetot
ali
ncometaxexpensefort
heyear
.

Netdef
err
edt
axexpenseorbenef
it
Thedif
ferencebet
weent hechangeindefer
redtaxassetandt
hechangei
ndef
err
ed
taxl
i
abil
it
yisthenetdef
erredtaxexpenseorbenef
it
.

Obser
vet
hef
oll
owi
ngusi
ngt
hepr
ecedi
ngi
l
lust
rat
ion:

(180,
000
Taxbenef
itf
rom i
ncr
easeindef
err
edtaxasset )
Taxexpensefrom i
ncr
easeindefer
redtax
90,
000
l
iabi
l
it
y
Netdef
err
edt
axbenef
it ( 90,
000)

Needl
esstosay,i
fthetaxexpensefrom t
heincreaseindeferr
edtaxl
i
abi
li
tyi
smor e
t
hanthetaxbenefi
tfr
om theincreaseindef
erredt axasset
,ther
eisanetdefer
red
t
axexpense.

Cur
rentt
axl
i
abi
l
it
yandcur
rentt
axasset
Acurrentt
axli
abi
li
tyi
sthecur
rentt
axexpenseort
heamountofi
ncomet
axact
ual
l
y
payabl
e.Thi
siscl
assi
fi
edascurr
entl
iabi
l
it
y.

Underouri
ncomet
axl
aw,i
ncomet
axf
orcor
por
ati
onsi
spayabl
eever
yquar
ter
.

I
ftheamountoft
axalreadypaidfort
hecurrentper
iodexceedstheamountact
ual
l
y
payabl
efort
heper
iod,theexcessisr
ecogni
zedasacur r
enttaxasset
.

Actual
ly,acur
rentt
axasseti
sapr
epai
dincomet
axandshal
lbecl
assi
fi
edascur
rent
asset.

Acurrentt
axli
abi
l
it
yorcurr
enttaxassetshal edusi
lbemeasur ngt
het
axr
atet
hat
hasbeenenact
edandef
fect
iveatt
heendoft her
epor
ti
ngper
iod.

Pr
esent
ati
onofdef
err
edt
axassetorl
i
abi
l
it
y
PAS1 2,paragr
aph70,providesthatwhenanent it
ymakesadi st
incti
onbetween
cur
rentandnoncurr
entassetsandl i
abil
it
ies
,itshal
lnotcl
assi
fydef
erredtaxasset
s
ascurr
entasset
sanddeferr
edt axl
iabil
i
ti
esascur r
entli
abi
l
it
ies
.

Accordi
ngly,adefer
red t
axassetshal
lbe cl
assi
fi
ed asnoncurr
entassetand a
defer
redtaxli
abi
l
it
yshallbecl
assi
fi
edasnoncurrentl
i
abil
i
tyregar
dlessofr
ever
sal
peri
od.

Mor
eover
,adef
err
edt
axassetordef
err
edt
axl
i
abi
l
it
yshal
lnotbedi
scount
ed.

Of
fsetofdef
err
edt
axassetandl
i
abi
l
it
y
UnderPAS1,assetsandl
i
abi
l
it
iesshal
lnotbeof
fsetunl
essr
equi
redorper
mit
tedby
anot
herst
andard.
PAS 12,par
agraph 74,provi
dest
hatan ent
it
yshal
lof
fseta def
err
ed t
axasset
agai
nstadef
err
edtaxliabi
l
it
ywhen:

a.Thedefer
redtaxassetanddef
err
edt
axl
i
abi
l
it
yrel
atet
oincomet
axesl
evi
ed
bythesametaxauthori
ty.

b.Theenti
tyhasalegalenf
orceabl
eri
ghtt
osetof
facur
rentt
axassetagai
nsta
cur
rentt
axli
abi
l
it
y.

Measur
ementofdef
err
edt
axassetorl
i
abi
l
it
y
Adefer
redt
axliabi
l
it
yordeferredt
axassetshal
lbemeasur
edusingthetaxr
atet
hat
hasbeenenact
edbyt heendoft hereport
ingperi
odandexpectedtoappl
ytothe
per
iodwhentheasseti
sreal
izedorthel
iabi
l
ityi
sset
tl
ed.

Forexample,the t
ax rat
e of30%is appl
i
cabl
etot he t
axabl
e year2019.By
December31,2019,anew t axl
aw hasbeenenact
edi mposi
nga25% t axrat
e
eff
ect
ivet
axabl
eyear2020.

Thecurr
entt
axli
abi
li
tyorcur
rentt
axasseti
smeasur
edat30% butt
hedeferr
edtax
l
iabi
l
it
yordef
err
edtaxasseti
smeasur
edusingt
henewenactedt
axrateof25%.

I
ntr
aper
iodandi
nter
per
iodt
axal
l
ocat
ion
I
ntr
aperi
od taxall
ocat
ion i
stheall
ocat
ionofi
ncomet
axexpenset
othevar
ious
r
evenuesthatbr
oughtaboutthet
ax.

Thus,the totali
ncome t ax expense is al
locat
ed t
oincome fr
om conti
nui
ng
operat
ions,i
ncomef rom discont
inuedoperati
onsandpri
orper
ioderr
orsori
tems
di
rectl
ychargedorcredi
tedt oret
ainedear
nings.

I
nter
peri
odt
axal
l
ocat
ioni
sther
ecogni
ti
onofadef
err
edt
axassetordef
err
edt
ax
l
i
abil
it
y.

St
atementoff
inanci
alposi
ti
onappr
oach
Toaccountforadefer
redtaxassetorl
iabi
l
it
y,astat
ementoffinanci
alposi
ti
ont
hat
showsal
ltheasset
sandli
abil
i
ti
esatthei
rcarr
yingamounti
sfi
rstprepar
ed.

Thef
oll
owi
ngpr
ocedur
esar
ethenf
oll
owed:

1
.Det
ermi
net
het
axbaseoft
heasset
sandl
i
abi
l
it
iesi
nthest
atementoff
inanci
al
 posi
ti
on.

2.Compar
ethecar
ryi
ngamount
swi
tht
het
axbase.

3.Thedi
ff
erencebet
weent hecarr
yingamountandt
axbasesnor
mal
l
ywi
l
lresul
t
toadef
erredt
axassetorli
abi
l
it
y.

4.Per
manentdi
ff
erencesdonotgi
ver
iset
odef
err
edt
axassetorl
i
abi
l
it
y.

5.Appl
ythet
axr
atet
othet
empor
arydi
ff
erences.

6.Det
ermi
net
hebegi
nni
ngandendi
ngbal
anceofdef
err
edt
axassetorl
i
abi
l
it
y.

7.Recognizethenetchangebet
weent
hebegi
nni
ng and endi
ng bal
anceof
def
erredtaxassetorl
i
abi
l
it
y.

I
l
lust
rat
ion1–Def
err
edt
axl
i
abi
l
it
y
Excel
si
orCompanyrepor
tspretaxaccounti
ngincomeorP5,
000,000fortheyear
endedDecember31
,2019.Thisincomeincl
udesuncol
l
ect
edinst
all
mentr
eceivabl
e
ofP500,000.

Theenti
ty’
sinstall
mentsal
esar
etaxabl
ewhencashi scol
l
ect
ed,sot
heuncol
l
ect
ed
i
nstal
l
mentr eceivabl
ewoul
dnotbepartoft
axabl
eincome.

Theincomet
axr
atei
s30%.Theent
it
yhadnodef
err
edt
axesatt
hebegi
nni
ngof
2019.

Pret
axaccountingi ncome 5,
000,
000
I
nstal
lmentreceivableonDecember31
,201
9 500,
000
Taxabl
eincomef or2019 4,
500,
000

Cur
rentt
axexpense(
30% x4,
500,
000) 1
,350,
000

I
ncomet axexpense 1
,350,
000
Incomet axpayabl
e 1
,350,
000

TheaccountsonDecember31,2019havethesamebasi
sforaccount
ingandt
ax
pur
poses,exceptt
hei
nst
all
mentr
ecei
vabl
e.

Carryi
ngamountofi
nstal
lmentr
ecei
vabl
e 500,
000
Taxbase 0
Taxablet
emporar
ydif
ference 500,
000
Deferr
ed tax l
i
abi
l
it
y – 12/
31/
2019 (
30% x
500,000) 1
50,
000

I
ncomet
axexpense 1
50,
000
Def
err
edtaxli
abi
l
it
y 1
50,
000

I
fthecarryi
ngamountofanas setishighert
hanthetaxbase,thedi
ff
erencei
sa
f
utur
etaxableamountandt
her
efore,ther
eisadef
erredtaxl
i
abil
i
ty.

Thetaxbaseoft
heinst
all
mentr
ecei
vabl
eiszer
obecauset
hei
nst
all
mentsal
esar
e
tax
ablewhencol
l
ect
ed.

I
ncomest
atementpr
esent
ati
onf
or2019
I
ncomebef orei
ncomet ax 5,
000,
000
I
ncomet axexpense:
Curr
enttaxexpense 1
,350,
000
Decreaseindeferr
edt ax
1
,500,
000
asset 1
50,
000

NetI
ncome 3,
500,
000

Cont
inuat
ion
Cont
inui
ngtheil
l
ust
rat
ion,Excel
si
orCompanyreport
spr
etaxaccount
ingi
ncomeof
P6,
000,000fort
heyearendedDecember31,2020.

Thi
saccount
ingincomei
ncl
udesuncol
l
ect
edi
nst
all
mentr
ecei
vabl
eofP300,
000on
December31,2020.

Thei
nst
all
mentr
ecei
vabl
eforP500,
000onDecember31
,201
9iscol
l
ect
edi
n2020.

Comput
ati
onf
ort
axabl
eincomef
or2020
Pret
axaccount
ingincome 6,
000,
000
I
nstal
lmentr
eceivabl
eonDecember31
,201
9 500,
000
 coll
ectedi
n2020 ( 300,00
I
nstal
lmentrecei
vabl
e–December31
,201
9 0)
Taxabl
eincome 6,
200,
000

Cur
rentt
axexpense(
30% x6,
200,
000) 1
,860,
000

Def
err
edt
axl
i
abi
l
it
yonDecember31,2020
Carryi
ng amount of i
nstal
l
ment r
ecei
vabl
e -
12/31/
2020 300,
000
Taxbase 0
Taxablet
empor
arydif
fer
ence 300,
000

Def
err
edtaxli
abi
l
it
y-December31
,2020
(30% x300,000) 90,
000
Def
err
edtaxli
abi
l
it
y-December31
,2019 1
50,
000

(60,
000
Decr
easei
ndef
err
edt
axl
i
abi
l
it
y )

Jour
nal
ent
ri
esi
n2020
1
.Tor
ecor
dthecur
rentt
axexpense:

I
ncomet axexpense 1
,860,
000
Incomet axpayabl
e 1
,860,
000

2.Tor
ecor
dthedecr
easei
nthedef
err
edt
axasset
:

Def
err
edt
axl
i
abi
l
it
y 60,
000

I
ncomet
axexpense 60,
000

I
ncomest
atementpr
esent
ati
onf
or2020
I
ncomebef
orei
ncomet
ax 6,
000,
000
I
ncomet axexpense:
Curr
enttaxexpense 1
,860,
000
Decreasei
ndef er
redt
axl
i
abi
l
it
y (60,000) 1
,800,
000

NetI
ncome 4,
200,
000

Noti
ce thatthe t
otali
ncome t
ax expense i
s si
mpl
y computed by mul
ti
plyi
ng
account
ingi
ncomeofP6,000,
000bythetaxrat
eof30% orP1
,800,
000.

Thi
sholdstrueifther
eisnochangeinthet
axrat
eandt hedi
ffer
encesbetween
account
ing income and t
axabl
e income ar
e income st
atement temporar
y
di
ffer
ences.

I
l
lust
rat
ion2–Def
err
edt
axasset
Si
mple Companyreport
spret
axaccount
ing i
ncome ofP7,
000,
000 f
ort
he year
endedDecember31,201
9.

Anunear
nedr
enti
ncomeofP800,
000i
sexcl
udedf
rom t
hisi
ncome.

SimpleCompanyfoll
owsthecashbasisfort
axpur posesandtheaccrualbas
isf
or
account
ingpur
poses.Accor
dingl
y,suchamounti
sincludedi
ntaxabl
eincome.

Thei
ncomet
axr
atei
s30%.

Pret
axaccounti
ngi ncome 7,
000,
000
Unearnedrenti
ncome–December31
,201
9 800,
000
Taxabl
eincomef or2019 7,
800,
000

Cur
rentt
axexpense(
30% x7,
800,
000) 2,
340,
000

I
ncomet axexpense 2,
340,
000
Incomet axpayabl
e 2,
340,
000

OnDecember31 ,2019,t
hest
atementoffi
nanci
alposi
ti
onaccountshavet
hesame
basi
sforaccount
ingandt
axpurposes
,exceptt
heunearnedr
entincome.

Carr
yingamountofunear
nedr
enti
ncome 300,
000
Taxbase 0
Deduct
ibl
etempor
arydi
ff
erence 300,
000

Def
err
edt
axasset–1
2/31
/201
9(30% x800,
000) 240,
000

I
ncomet
axexpense 1
50,
000
Def
err
edtaxli
abi
l
it
y 1
50,
000

I
fthetaxbaseofal i
abil
i
tyislowerthanthecar
ryi
ngamount,thedi
ff
erencei
sa
f
utur
ededucti
bleamountandtheref
ore,t
herei
sadefer
redt
axasset
.

I
ncomest
atementpr
esent
ati
onf
or2019
I
ncomebef oretax 7,
000,
000
I
ncomet axexpense:
Curr
enttaxexpense 2,340,
000
Decreaseindefer
redt
axbenef
it ( 240,
000) 2,
100,
000

NetI
ncome 4,
900,
000

Cont
inuat
ion
Cont
inui
ngtheil
lust
rat
ion,Si
mpl
eCompanyr epor
tspr
etaxaccount
ingi
ncomeof
P8,
000,000fort
heyearendedDecember31
,2020.

The unear
ned rentincome on December31
,201
9isi
ncl
uded i
nthe r
epor
ted
account
ingincome.

OnDecember31
,2020,t
heunear
nedr
enti
ncomei
sP1
,500,
000.

Moreover,Si
mpl
eCompanyr epor
tsanest
imat
edl
i
abi
l
it
yforpr
oductwar
rant
yof
P500,000onDecember31
,2020.

Thewar
rant
ycosti
sdeduct
ibl
eonl
yfort
axpur
poseswhenact
ual
l
ypai
d.

Taxabl
eincomef
or2020
Pr
etaxaccount
ingi
ncome 8,
000,000
Unear
nedrenti
ncome–December31
,201
9 ( 800,
000
 )
Unearnedrentincome–December31
,2020 1,
500,
000
War r
antyl
iabi
l
it
y 500,
000
Taxablei
ncome 9,
200,
000

Cur
rentt
axexpense(
30% x9,
200,
000) 2,
760,
000

Comput
ati
onofdef
err
edt
axasset
OnDecember31 ,2020,t
hest
atementoffi
nancialposi
ti
onaccount
shavet
hesame
basi
sforaccount
ingandt
axpur
posesexceptthefoll
owing:

Car
ryi
ngamount Taxbase Di
ff
erence
Unearned r
ent
1
,500,
000 0 1
,500,
000
i
ncome
Warrantyl
i
abi
l
it
y 500,
000 0 500,
000
Tot
al deductibl
e t empor
ary
2,
000,
000
di
ff
erences

Defer
red tax asset – 1 2/
31/
2020 (
30% x
2,
000,000) 600,
000
Defer
redtaxasset–1
2/31
/2019 240,
000

Decr
easei
ndef
err
edt
axasset 360,
000

Jour
nal
ent
ri
esonDecember31,2020
1
.Tor
ecor
dthecur
rentt
axexpense:

I
ncomet axexpense 2,
760,
000
Incomet axpayabl
e 2,
760,
000

2.Tor
ecor
dthei
ncr
easei
ndef
err
edt
axasset
:

Def
erredt
axasset 360,
000
I
ncometaxbenef
it 360,
000
I
ncomest
atementpr
esent
ati
onf
or2020
I
ncomebef oret
ax 8,
000,
000
I
ncometaxexpense:
Cur
renttaxexpense 2,
760,
000
I
ncomet axbenefi
t (360,
000) 2,
400,
000

NetI
ncome 5,
600,
000

Not
iceagain,thet
otali
ncomet
axexpensei
scomput
edbymul
ti
plyi
ngP8,
000,
000
by30% orP2,400,
000.

Compr
ehensi
vei
l
lust
rat
ion
OnDecember31 ,201
9,t heaccountsofEas
yCompanyhavet
hesamebas
isf
or
account
ingandt
axpurposes,except
:

Car
ryi
ngamount Taxbase Di
ff
erence
Comput ersof
twar
e
4,
000,
000 0 4,
000,
000
cost
Buil
ding 47,
500,
000 45,
000,
000 2,
500,
000

I
nJanuar
y2019,EasyCompanyi
ncur
redcostofP5,
000,
000f
ort
hedevel
opmentof
acomput
ersof
twareproduct
.

Consi
deri
ngthetechnicalfeasi
bil
i
tyofthepr oduct,t
hiscostwascapi
tal
i
zedand
amort
izedover5year
sf oraccounti
ngpurposesusingt
hestrai
ghtl
i
nemethod.

Computersof
twar
ecost 5,000,
000
Amort
izat
ionf
or2019(
5,000,
000/
5) (
1,000,
000)

Car
ryi
ngamount–December31
,201
9 4,
000,
000

Thecomputersof
twarecosthasazer
otaxbasebecauset
het
otalamountwas
expensedi
n2019fort
axpurposes
.

Thebui
ldi
ngwasacquiredonJanuary1,2019forP50,
000,
000anddepreci
ated
usi
ngt
hestrai
ghtl
i
neat5% f
oraccount
ingpur
posesand1
0% f
ort
axpur
poses.
Bui
l
ding 50,
000,000
(2,
500,000
Accumulat
eddepreci
ati
on(
50,
000,000x5%) )
Carr
yingamount-December31,201
9 47,
500,000

Bui
l
ding 50,
000,000
(5,
000,000
Accumulat
eddepr
eci
ati
on(50,000,
000x1
0%) )
Taxbase-December31,2019 45,
000,000

Comput ersoftwarecost 4,
000,
000
Bui
ldi
ng( 47,500,000-45,000,000) 2,
500,
000
Tot
altaxabletempor ar
ydif
fer
ences 6,
500,
000

Def
err
edtaxli
abil
i
ty-December31
,201
9
(30% x6,500,
000) 1
,950,
000

Jour
nal
ent
ry
I
fthecar r
yingamountofanas seti
shi
gherthanthetaxbase,t
hedif
ferenceisa
fut
uretaxabletemporar
ydi
ffer
enceandther
efor
e,therei
sadef er
redtaxliabi
l
it
y.
Theincomet axrat
eis30%.

Jour
nal
ent
ryt
orecor
dthedef
err
edt
axl
i
abi
l
it
yonDecember31
,201
9.

I
ncomet
axexpense 1
,950,
000
Def
err
edtaxli
abi
l
it
y 1
,950,
000

Comput
ati
onf
ort
axabl
eincome
I
fthepret
axaccount
ingi
ncomef
or201
9isP1
0,000,
000,t
het
axabl
eincomei
s
comput
edas:

Pr
etaxaccount
ingi
ncome 10,000,000
(4,000,000
Comput ersoft
warecostenti
relyexpensed )
in201 9(5,
000,000–1 ,000,000) (2,500,000
Excesstaxdepreciat
ion(
5,000,000–2, 500,
000) )
Taxabl
ei ncome 3,
500,000
Cur
rentt
axexpense(
30% x3,
500,
000) 1
,050,
000

Jour
nal
ent
ryt
orecor
dthecur
rentt
axexpensef
or201
9:

I
ncomet axexpense 1
,050,
000
Incomet axpayabl
e 1
,050,
000

I
ncomest
atementpr
esent
ati
onf
or2019
I
ncomebef oret
ax 1
0,000,
000
I
ncometaxexpense:
Cur
renttaxexpense 1
,050,
000
Def
erredtaxexpense 1
,950,
000 3,
000,
000

NetI
ncome 7,
000,
000

Asaproof,si
ncetherearenoper
manentdi
ff
erences,thetot
ali
ncometaxexpense
i
sequalt
ot heaccount
ingi
ncomeofP1
0,000,
000mul ti
pli
edby30% orP3,
000,000.

Cont
inuat
ion
Conti
nui
ngthei
l
lust
rat
ion,onDecember31,2020,t
hestatementoff
inanci
alposi
ti
on
account
shavet
hesamebasi sf
oraccount
ingandtaxpurposes
,exceptthefol
l
owing:

Carryi
ng
Taxbase Di
ff
erence
amount
Comput ersof
twarecost 3,000,000 0 4,
000,
000
Bui
lding
45,
000,
000 45,
000,
000 2,
500,
000
Accrued li
abi
li
ty – heal
th
2,
000,
000 0 2,
000,
000
car
e

I
nJanuar
y2020,EasyCompanyenteredint
oanagreementwi
ththeemployeest
o
pr
ovi
deheal
thcar
ebenef
it
s.Thecostofsuchpl
anf
or2020isP2,
000,000.

Thi
samountwasaccr
uedasexpensei
n2020f
oraccount
ingpur
poses
.However
,
heal
thcar
ebenef
it
sar
ededuct
ibl
efort
axpur
posesonl
ywhenact
ual
l
ypai
d.

Comput ersof
twar
ecost 3,
000,
000
Bui
ldi
ng 5,
000,
000
Tot
altaxablet
emporar
ydif
fer
ences 8,
000,
000

Def
err
edt
axli
abi
li
ty–December31,2020
(30% x8,000,000) 2,
400,
000
Def
err
edt
axli
abi
li
ty–December31,2019 1,
950,
000
I
ncr
easei
ndefer
redtaxli
abil
i
ty 450,
000

Accr
uedl
i
abi
l
it
y–heal
thcar
e 2,
000,
000

Def
err
edt
axl
i
abi
l
it
y–December31,2020(
30% x2,
000,
000) 600,
000

I
fthetaxbaseofal i
abil
i
tyislowerthanthecar
ryi
ngamount,thedi
ff
erencei
sa
f
utur
ededucti
bleamountandtheref
ore,t
herei
sadefer
redt
axasset
.

Jour
nal
ent
ri
esi
n2020
1
.Tor
ecor
dthei
ncr
easei
ndef
err
edt
axl
i
abi
l
it
y:

I
ncomet
axexpense 450,
000
Def
err
edtaxli
abi
l
it
y 450,
000

2.Tor
ecor
dthedef
err
edt
axasset
:

Def
err
edt
axasset 600,
000
600,
00
I
ncomet
axbenef
it 0

Comput
ati
onoft
axabl
eincomef
or2020
I
fthepret
axaccount
ingi
ncomef
or2020i
sP1
5,000,
000,t
het
axabl
eincomei
s
comput
edas:

Pret
axaccount
ingincome 1
5,000,
000
Reversal
ofamort
izati
onofsof
twar
ecost 1,
000,
000
Excesstaxdepreci
ati
on (2,
500,000
Healt
h care benef
itsnotyetdeduct
ibl
efort
ax )
purposes 2,
000,000
Taxablei
ncome 15,
500,000

Cur
rentt
axexpense(
30% x1
5,500,
000) 4,
650,
000

Jour
nal
ent
ryt
orecor
dthecur
rentt
axexpensef
or2020:

I
ncomet axexpense 4,
650,
000
Incomet axpayabl
e 4,
650,
000

I
ncomest
atementpr
esent
ati
onf
or2020
I
ncomebef oret
ax 1
5,000,
000
I
ncometaxexpense:
Cur
renttaxexpense 4,
650,000
450,000
Def
err
edtaxexpense ( 600,
000
4,
500,
000
I
ncometaxbenefi
t )

NetI
ncome 1
0,500,
000

Asaproof
,thet
otali
ncomet
axexpensei
sequalt
oP1
5,000,
000mul
ti
pli
edby30%
orP4,
500,
000.

Netdef
err
edt
ax
Def
err
edtaxexpense 450,
000
I
ncometaxbenefi
t (
600,
000)

Netdef
err
edt
axbenef
it 1
50,
000

I
l
lust
rat
ion–r
eval
uat
ion
OnJanuar
y1,201
4,Si
mpl
eCompanyacqui
redanequi
pmentf
orP6,
000,
000.
Theequi
pmentisdepr
eci
atedusi
ngast
rai
ghtl
i
nemet
hodbasedona1
5-yearl
i
fe
wit
hnoresi
dual
val
ue.

OnJanuary1,2019,af
ter5year
s,t
heequi
pmentwasr
eval
uedatar
epl
acement
costofP6,
750,
000.

Thei
ncomet
axr
atei
s30%.

Replacement
Cost Appr
eci
ati
on
cost
Equi
pment 6,
000,
000 6,750,000 750,
000
Accumul ated
depreciati
on
(6,000, 000/15x
2,
000,
000
5)
(6,750, 000/15x
  2,
250,
000 250,
000
5)
Carr
yingamount /
soundval
ue/
r
evaluati
onsurpl
us 4,
000,
000 4,
500,
000 500,
000

Equi
pmentatcost 6,
000,
000
Accumulat
eddepreci
ati
on 2,
000,
000
Carr
yingamount-January1
,201
9 4,
000,
000

Equi
pmentatr epl
acementcost 6,
750,
000
Accumulateddepreci
ati
on 2,
250,
000
Soundvalue-January1,2019 4,
000,
000

Soundval ue 4,
500,
000
Carryi
ngamount 4,
000,
000
Revaluati
onsurpl
us-January1,2019 500,
000
Deferredtaxli
abi
l
it
y(30% x500,000) 150,
000

Netr
eval
uat
ionsur
plus 350,
000

Thereval
uati
onsur
pl saf
usi utur
etaxabl
eamountandt
her
efor
e,t
her
eisadef
err
ed
taxl
i
abil
it
y.
Jour
nal
ent
ri
esi
n2019
1
.Tor
ecor
dther
eval
uat
ion:

Equi
pment 750,
000
250,
00
0
Accumul
ateddepreci
ati
on 500,
00
Reval
uat
ionsur
plus 0

2.Tor
ecogni
zet
hedef
err
edt
axl
i
abi
l
it
yont
her
eval
uat
ionsur
plus:

Reval
uat
ionsur
plus 1
50,
000
Def
erredt
axli
abi
l
it
y 1
50,
000

Notethatt
hedef
err
ed t
axl
i
abi
l
it
yischar
ged t
o equi
ty,meani
ng,r
eval
uat
ion
sur
plus.

3.Torecor
dtheannualdepr
eci
ati
onsubsequentt
oreval
uat
ion(
remai
ningl
i
feof
equi
pmenti
s10years)
:

Depr
eci
ati
on(
4,500,
000/1
0) 450,
000
Accumul
ateddepr
eciat
ion 450,
000

Thedepr eci
ati
oni
sbasedont
hesoundval
ueordepr
eci
atedr
epl
acementcost
foraccounti
ngpur
poses.

4.Tor
ecor
dtheannual
real
i
zat
ionoft
her
eval
uat
ionsur
plus:

Reval
uat
ionsur
plus 35,
000

Ret
ainedear
nings 35,
000

Revaluati
onsurpl
us 500,
000
Deferredtaxli
abi
l
it
y (
150,
000)
Netrevaluat
ionsurpl
us 350,
000
 Annual
real
i
zat
ion(
350,
000/1
0) 35,
000

Ther eval
uat
ionsurpl
usisacomponentofot hercomprehensi
vei
ncomeand
subsequentl
yrecl
assi
fi
edt
hroughequi
tyorr
etai
nedear
nings.

Comput
ati
onoft
axabl
eincome
I
fthei
ncomebefor
edepr
eci
ati
onandbef
oret
axi
sP3,
000,
000,t
het
axabl
eincome
i
scomputedas:

I
ncomebef oredepr
eci
ati
onandtax 3,
000,
000
Taxdepreci
ati
onbasedoncost
(4,
000,000/10) ( 400,
000)
Taxabl
eincome 2,600,
000

Cur
rentt
axexpense(
30% x2,
600,
000) 780,
000

Jour
nal
ent
ryt
orecor
dthecur
rentt
axexpense:

I
ncomet
axexpense 780,
000
780,
00
I
ncomet
axpayabl
e 0

Comput
ati
onofdef
err
edt
axl
i
abi
l
it
y
On December31
,2019,the t
axabl
etempor
ary di
ff
erence as a r
esul
toft
he
r
eval
uati
oni
scomput
edas:

Equi
pmentatr epl
acementcost 6,
750,
000
Accumulat
eddepr eci
ati
on:
January1,2019 2,
250,
000
Depreciat
iononrevaluedamountfor201
9 450,
000 2,
700,
000
Carr
yingamount-December31 ,201
9 4,
050,
000

Equi
pmentatcost 6,
000,
000
Accumul
ateddepr
eci
ati
on:
 January1,2019 2,
000,
000
Depreciat
iononcostf
or2019 400,
000 2,
400,
000
Taxbase-December31 ,2019 3,
600,
000

Carryi
ngamount 4,
050,
000
Taxbase 3,
600,
000
Taxablet
emporar
ydi
ff
erence 450,
000

Deferr
ed tax l
iabi
li
ty - 12/
31/2019 (
30% x
450,000) 135,000
Deferr
edtaxli
abil
it
y-January1,2019 150,000
Decreasei
ndef er
redtaxli
abi
li
ty (
15,000)

Jour
nal
ent
ryt
orecor
dthedecr
easei
ndef
err
edt
axl
i
abi
l
it
y:

Def
err
edt
axl
i
abi
l
it
y 1
5,000

I
ncomet
axexpense 1
5,000

I
ncomest
atementpr
esent
ati
onf
or2019
I
ncomebefor
edepreci
ati
onandt
ax 3,000,000
Depr
eci
ati
ononreval
uedamount (450,000)

I
ncomebef or
eincomet ax 2,
550,
000
I
ncomet axexpense:
Cur r
enttaxexpense 780,000
Decr easeindef
erredtaxl
iabi
l
it
y (1
5,000) 765,
000
NetIncome 1
,785,
000
Revaluat
ionsurpl
usreali
zat
ion 35,
000

Tot
alef
fectonr
etai
nedear
nings 1
,820,
000

Thetotali
ncometaxexpensei
sequalt
otheaccount
ingi
ncomeofP2,
550,
000
mult
ipl
i
edby30% orP765,
000.

Recogni
ti
onofdef
err
edt
axassetf
orunr
eal
i
zedl
oss
PAS 1
2hasbeenamendedt oclari
fyhow t
orecogni
zeadef err
edtaxassetfor
unr
eal
ized loss on debt i
nvest
ment measur
ed at fai
r val
ue thr
ough other
comprehensi
veincome.
OnJanuar
y1,201
9,anent
it
ypur
chasedbondsatt
hef
aceamountofP2,
000,
000.

Thebusinessmodelinmanagingt
hefinanci
alasseti
stocoll
ectcontr
act
ualcash
fl
owsthataresolel
ypayment
sofpri
nci
palandinter
estandal
sotosellt
hebondsin
theopenmar ket
.

Underthi
sbusi
nessmodel,t
heent i
tyidrequi
redt
omeasuret
hebondi
nvest
mentat
f
airval
uethr
oughothercomprehensivei
ncomeorFVOCI.

Thebondsmatur
eonDecember31
,2021and pay1
0% i
nter
estannual
l
yever
y
December31
.

Thetaxlaw st
atesthatthetaxbaseofthebondinvest
menti
scost
.Anygainont
he
bondinvest
menti staxablewhenr eal
i
zedandanyl ossont
hebondinvest
menti
s
deduct
iblewhenincurred.Thei
ncomet axr
atei
s30%.

Thebondsar
equot
edat95and90onDecember31
,201
9and2020,r
espect
ivel
y.

Theenti
tycol
l
ectedt
hebondi
nvest
mentonDecember31
,2021att
hef
aceamount
ofP2,
000,000.

Fair val
ue - December 31 , 201
9 (
95% x
2,000,000) 1,900,000
Taxbase-hi st
ori
calcost 2,000,000
Unreali
zedlossfor2019bef
oret
ax-OCI (
100,000)

Thefai
rval
ueonDecember31
,201
9isact
ual
l
ythecar
ryi
ngamountoft
hebond
i
nvest
ment.

Thet
axbasei
sequal
tot
hehi
stor
ical
costofP2,
000,
000.

Theunr eal
i
zedlossisafut
urededucti
bleamountt
hatgi
vesr
iset
oadef
err
edt
ax
assetofP100,
000times30% orP30,
000.

Jour
nal
ent
ri
esi
n2019
1
.Tor
ecor
dtheacqui
si
ti
on:

Fi
nanci
alasset–FVOCI 2,
000,
000
 Cash 2,
000,
000

2.Tor
ecor
dthei
nter
estr
ecei
ved:

Cash(
10% x2,
000,
000) 200,
000
200,
00
I
nter
esti
ncome 0

3.Tor
ecor
dtheunr
eal
i
zedl
ossf
or201
9:

Unr
eal
i
zedl
oss–OCI 1
00,
000
100,
00
Fi
nanci
alasset–FVOCI 0

Fai
rvalue-December31 ,2019
(95% x2,000,
000) 1,900,000
His
tori
calcost (
2,000,000)
Unreal
izedloss–OCIfor2019bef
oret
ax (
100,000)

4.Tor
ecor
dthedef
err
edt
axassetr
elat
edt
otheunr
eal
i
zedl
ossf
or201
9:

Def
err
edt
axasset(
30% x1
00,
000) 30,
000

Unr
eal
i
zedl
oss–OCI 30,
000

Theunreal
i
zedl
ossi
saf
utur
ededuct
ibl
eamountgi
vi
ngr
iset
oadef
err
edt
ax
asset
.

Par
agr
aph 61A ofPAS 12 st
ates t
hatdeferred t
axes ari
si
ng f
rom other
compr
ehensi
vei
ncomeshal
lber
ecognizedi
nothercomprehensi
vei
ncome.
The amount of unr
eal
ized l
oss to be r
ecognized in t
he st
atement of
comprehensi
vei
ncomefor2019isP1
00,000minusP30,000orP70,
000.

Jour
nal
ent
ri
esf
or2020
1
.Tor
ecor
dthei
nter
estr
ecei
ved:
 Cash 200,
000
200,
00
I
nter
esti
ncome 0

2.Tor
ecor
dthei
ncr
easei
nunr
eal
i
zedl
ossf
or2020:

Unr
eali
zedloss–OCI 1
00,
000
Fi
nanci
alasset–FVOCI 1
00,
000

Fai
rvalue–December31,2020
(90% x2, 000,000) 1,800,000
His
tori
cal cost–t axbase (
2,000,000)
Cumulativeunr eali
zedloss–December31,2020 (200,000)
Unreal
izedl oss–OCIf or2019bef
oret
ax (
100,000)
Unreal
izedl oss–OCIf or2020bef
oret
ax (
100,000)

3.Tor
ecor
dthei
ncr
easei
ndef
err
edt
axassetf
or2020:

Def
erredtaxasset 30,
000
Unreal
i
zedloss–OCI 30,
000

Deferr
edtaxasset–December31,2020
(30% x200,000) 60,
000
Deferr
edtaxasset–December31,2019 30,
000
Decreasei
ndeferredtaxasset 30,
000

Jour
nal
ent
ri
esf
or2020
1
.Tor
ecor
dthei
nter
estr
ecei
ved:

Cash 200,
000
200,
00
I
nter
esti
ncome 0

2.Torever
sethedefer
redt
axassetr
elat
edt
oOCIduet
othecol
l
ect
ionoft
hebond
i
nvestmentonDecember31
,2021:
 Unr
eal
i
zedl
oss–OCI 30,
000

Def
err
edt
axasset 30,
000

3.Torecor
dthecol
l
ect
ionoft
hebondi
nvest
mentatmat
uri
tyonDecember31
,
2021:

Cash 2,
000,
000
Fi
nancial
asset–FVOCI 2,
000,000
Unreal
i
zedloss–OCI 200,
000

Assumetheinvest
mentwassol
donJul
y1,2021f
orP2,
500,
000pl
us
accruedi
nter
est
1
.Tor
ecor
dint
erestr
ecei
vedf
orsi
xmont
hs:

Cash(
2,000,
000x1
0% x6/
12) 200,
000
200,
00
I
nter
esti
ncome 0

2.Tor
ever
set
hedef
err
edt
axasset
:

Unr
eali
zedloss–OCI 60,
000
Def
err
edt axasset 60,
000

3.Tor
ecor
dthesal
eonJul
y1,2021
:

Cash 2,
500,
000
Fi
nancial
asset–FVOCI 1
,800,
000
Unreal
i
zedloss–OCI 200,
000
Gai
nonsal eofbondi
nvest
ment 500,
000

Sal
esprice 2,
500,
000
His
tori
calcost 2,
000,
000
Gainonsaleofbondi
nvest
ment 500,
000

Di
scl
osur
es
Thedi
sclosur
erequi
rement
sfori
ncomet
axar
equi
teext
ensi
ve.However
,thekey
el
ementsare:

1
.Component s ofthe t
otalincome t
ax expense,forexampl
e,cur
rentt
ax
expense,deferr
edtaxexpenseanddefer
redtaxbenef
it
.

2.An expl
anat
ion oft
her
elat
ionshi
p bet
weent
otali
ncomet
axexpense and
account
ingprof
it
.

3.Theappli
cablet
axrate,t
hebasi
sonwhichthetaxratehasbeenappl
i
ed,and
theexpl
anat
ionforanychangei
ntheappl
i
cabletaxrat
e.

4.The aggregat
e amountof cur
rentand def
err
ed t
ax r
elat
ing t
oit
ems
recogni
zeddir
ect
lyi
nequi
ty.

5.Theaggregateamountoftempor ar
ydifferencesassoci
atedwit
hinvest
ments
i
nsubsidi
ary,associ
ateandj
ointventur
ef orwhichnodeferredt
axli
abil
i
tyhas
beenrecognized.
6.Anal
ysi
softhe begi
nni
ng and endi
ng bal
ance ofdef
err
ed t
axassetand
def
err
edtaxl
i
abi
li
ty.