ABC Co. started its operations on January 1, 20x1.

Information on temporary differences during the

first two years of operations is shown below:

Dec. 31, 20x2 Dec. 31, 20x1

Carrying Differenc Carrying
amount Tax base e amount Tax base Difference
Assets 100,000 90,000 10,000 120,000 100,000 20,000
Liabilities 50,000 43,000 7,000 60,000 45,000 15,000

Pretax incomes were ₱400,000 and ₱500,000 in 20x2 and 20x1, respectively. Income tax rate is
30%.

How much is the current tax expense in 20x2?

Solutions:

20x1
The 20x1 income tax expense and current tax expense are computed as:

Multiply by
Description of items Tax rate
Description of items
Pretax income 500,000
Permanent difference: -
Acctg. profit subj. to tax 500,000 30% ITE 150,000
Less:  TTD (20,000) 30% Less:  DTL (6,000)
Add:  DTD 15,000 30% Add:  DTA 4,500
Taxable profit - 20x1 495,000 30% CTE 148,500

20x2
The 20x2 income tax expense and current tax expense are computed as:

Multiply by
Description of items Tax rate
Description of items
Pretax income 400,000
Permanent difference: -
Acctg. profit subj. to tax 400,000 30% ITE 120,000
ADD:  TTD (10,000) 30% ADD:  DTL 3,000
LESS:  DTD 8,000 30% LESS:  DTA (2,400)
Taxable profit - 20x1 402,000 30% CTE 120,600