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    Kristine Diane CABAnAS
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    © All Rights Reserved
    Download as PDF or read online from Scribd
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    20 views32 pages

    C16 - Accounting For Income Tax PDF

    Uploaded by

    Kristine Diane CABAnAS

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 32
    ys etncen acounting income may fied into to, na a. Permanent differences b, Temporary differences ‘Permanent differences Permanent differences are items of revem which are included in o income but will never be included in the ot Actually, permanent differences pertain § ‘revenue and Permanent differences do-not give rise to and liability because they have Examples include the following: ‘4. Interest income on deposits b. Dividends received Life insurance premium ‘Tax base iat ler Worden another was, the cx ase of an 08 Pret nate nent baby that allowed. for-tax purposrs. Tax base of an asset ‘The tax base of on asset is the amount thatual {for tawpunpoces ngainet future income. 1,000,000 as software development cost, amount is P1,000,000 for accounting purposes. However, if this amount is allowed as a ones for tax purposes, the tax base is zero bee amount is expensed in the current year. Tax base of a liability ‘The tax base of a liability is normally the cat ess the amount that-wil-be-dedctible-for-tas the future, For example, if an entity has recognized Warranty liability of P500,000, the carryi 'P500,000 for accounting purposes, However, an estimated warranty cost is ded actually paid. us e base is zero becaus estin Bepegevcric onan he oi differences: Other taxable temporary . y differences a Most tduable tomporary erences seg diferenggs in the cmaing of her for ageounting and tax P + taxable temporary Hoever her are oer taxable eomporay technical are not-uinine ise £0 deferred: tox lability Such other taxable temporary differences i Assets revaluted upward and noequivalen is made for tax purposes, b The carving amount of investment im associate or joint venture is ihe because the subsidiary, associate oF joing HOW distributed \:> cntire-ineome to the ‘The eost of a business-combination that 18 an aquisition is allocaved-to-the-identi ‘and.liabilties acquired at fair value. Recognition of a deferred tax liability PAS 12, paragraph 15, provides that a defereadl shall be reeog However, a deferred tax liabilit the taxable temporary. differener & Goodwill resulting which is nondeducti », Initial Fecognition of an asset oBUMh nizett for alltaxa © arises-from: ble-for-tax. purposes, ie temporasdiflanal from a business.combing ary dif Future deductible tempor" ey differen Buture dedwetibie tempor" following: i pe tvigaton Toss a. A probable and-mensurabl Ii ‘accounting prsrposes but Income shen actual mated product warranty conti accreting yaroses nthe curren-paid in det taxable-income when ac © Research cost is recognized as expense in. ‘aeeounting incame but not-permitted as a determining taxable income until a later 4. An impaisment loss is recognized for account but ignored for tax purposes until the assebsiaadl accounting purposes but deductible for tax When written-off a8 worthles Other deductible temporary difference Temporary differences that technically are differences but nevertheless give rise to defer inelude the following: 4 Asset is revalued downward and ne adjustment is made for tax purposes, 4 The tax/base of investment in subsidiary, g Jeiabwentureio higher than the caveyingeaa Ene aubsisiary, cosociate or joint vente continuing-losses. in. current and prior weg amount of deduetible-tempo plied bythe daxamte equals Journ sLentries in 2021 1, To record the current tax exPe” oa 16 dome Spates 5800000 2 To areas the deferrd tx Habit: 150 Peseta eponc 0% 52,00) Income statement presentation for 202; Income before income tax Income tax expense Decreane inferred ta abit Nevinoome Journai entries in 2022 1. To record the current tax expense: Income axexpense 2,250,000 ‘Income tax payable (30% x 7,500,000) 2 To decrease the deferred vax liability: Deferred taxliabilty 150,000 Tneome tax expense ‘The deferred tax liability on December 31, 203 balance because the taxable temporary dif fully. zeversed. La 4 Income statement presentation for 2022 Income before income tax Income tax expense: Currenttaxexpense } ‘Decreasein deferred tax lability 0g (280,000 Netinoome Journal entries in 2020 1, Te meeord the current 1 expense: Income \ Tecan a paete (908 x6 800,000) 2 To record the deferred tax asset: Deferred tax ase Tnoome tax bereft Doubif acount Betinated warranty cost Total deductible temporary differences Mali ty Deferred tax aseet & To record the deferred tax liability Income taxexspence Deered tax ability Excess tex depreciation Gross income on installment sale Total taxable temporary differences Malis by Deferred tas ability Income statement presentation for 2 Income before income tax Treome tax expense Current taxexpense Income tax benefit Deferred tax expense Netincome Observe that the 6,200,000 multip total income tax expe ax asset or | entation of deferred © ae ovides that when a AS 12 paragraph 0p ome dintnetlom terrence! and Nanch seamen ys ca ered Stress Accordingly dolce} fred cI period. Moreover, a deferred tax asset or deferred t We areeonnte Offset of deferred tax asset and liabilit Under PAS 1, assets and liabilities shall note b, The entity has a logalenforceablevight to seb taxasset against a cumenttax liability. Measurement of deferred tax asset or lis A deferred tax liability or deferred tax agi ‘measured using the tax rate that has been en end of the reporting period and expected to Period when the asset is realized or the liabi 1 30% is applicable te 2020, a new tax ate effective ta For example, the tax rate of Year 2020. By December 31, enacted imposing a 25% tax Frag atPenbtax linblity or current tax asset BNE but theldeterred tax liability or deter ‘measured using the-new.enacted-tan-eate ot sane Comprehensive illustration On December 31, 2020, the accounts oO dame Basie for acoountine 8 Corrvingamount Tax cost 400.000 Boe tno incurred In danuney 2020, Fay Company incurred for the development of computer sola 1 feasibility of the B ized over Years ethod. Considering the technical was capitalized and amortizet ‘Purposes using the straight Tine me ifthe pi Compster sofware cost taxable i Amortization for 2020 (600,005) Carrying amount ~December $1, 2020 ‘The computer software cost has a zeostaas the total amount was expensed-in-2020 forst ‘The building was acquired on January 1, 2020: and depreciated using the straight line at 8% purposes and 10% for tax purposes, j Building Accumulated depreciation (50,000,000 x 5%) Carrying amount December 31, 2020 Building Accumulated depreciation (60,000,000 x 10%) ‘Tax base December 31,2020 Computer software cos: ‘Building (47,500,000 - 45,000,000) Total taxable tempore diferences Detsedtas bili Den ICE EAM Dssater 31,2020 com contineton a Ses ani a le ity aman ee ro deans 2, oe Cop lagegee 2 Pos ceca are SEPRn ier Sees cares ce pee a Computer software cost samy ‘otal taxable temporary differences Deferred tax ability December 81,2021 (80% 8,000,000) Deferred tax lishlity December 31, 2020 ~fsxeasein deferced tax liability ‘Accrued liability ~ healthcare Defered tax sas December $1, 2021 (90%x2, Ifthe tax base of a liability is lower than the the diference i a future deductblenans there is @ deferred tax asset. a Journal entries in 2021 1. To record the increase in deferred tax Income tax expense _Deerred arisbilty om \. Feeord the deferred tax asset: har aie 600, Illustration - revaluation ‘OnJanuary 1, 2018, Simple Company for P,000,000, in depreciated using @ Poe sau he with 0 residual based on 8 15-908" On January 1 revalted at a replace ‘The income tax rate is G0%. Bguipment Axsumulated depresation (@.000.000/15%5) 2,000,000 (6750.000/15%5) CCanying amountIound val evalustionsurplus 4,000,000 4,500,000 250,000 Equipment at cost Accumulated depreciation Carrying amount —January 1, 2020 guipment replacement cst Accumulated deprecation Sound value January 1,2020 7 Sound value Carrying amount Revaluation surplus -January 1,2020 Deferned tax iby (20% x 500,000) ‘Net revaluation surplus ‘The sevaluation surpi lus is a future t therefore, a 4s & deferred.tax tabi i ‘On December 31, 2020, the taxable tom a result of the revaluation is computed aa: Equipment at replacement cost aa furs Deprosnn sn revalued amount for 2020 ty 12/81/2020 0% x: lity January 1, 2020 for income 1. Components ofthe total income ta tax benedit 2 An explanation of the relationship bet tax expense and accounting profit. ‘This essentially discloses the astounting. tax which is the aeeounting.profit aft Pee cia 3. The appticnbi has beemappiied, and the explanation for the applicable tax rate. to items recognized directly in equity. 5. ‘The aggregate amount of temporary differen with investments in subsidiary, associate {for which no deferred tax liability has been 6.

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