PRELEC 1 - CLASSIFYING TAX DIFFERENCE

NON-TAXABLE INCOME (NTI) ● Dividend income

received from
investee/domestic
corporation
● Interest earned on
deposits with banks
● Insurance claims
received

NON-DEDUCTIBLE EXPENSE (NDE) ● Insurance premium paid

on a life insurance policy
where the entity is the
designed beneficiary
● Fines paid for late
payment of taxes
● Tax Consequences
(fines, penalties, etc.)
● Insurance premium paid
for the current year
covering employees
insurance, employees
are the beneficiary

TAXABLE TEMPORARY DIFFERENCE (TTD) ● Gross Profit Installment

❖ FTALE Sales
❖ DEFERRED TAX LIABILITY ● Tax depreciation in
❖ ACCRUED TAX excess of depreciation
❖ FINANCIAL INCOME > TAXABLE INCOME for accounting purposes
● Excess of profit earned
over the profit reported
under the installment
method for income tax
purposes
● Deductible Insurance
Premiums paid in
excess of insurance
expense reported for
financial reporting
● Recorded amortization
for a long term
non-interest bearing note
● Excess warranty repairs
expenditure over
provision of warranty
DEDUCTIBLE TEMPORARY DIFFERENCE (DTD) ● Recorded deferral of
❖ FDAAB expense
❖ DEFERRED TAX ASSET ● Excess of book
❖ PREPAID TAX depreciation over tax
❖ TAXABLE INCOME > FINANCIAL INCOME depreciation
● Rent Expense/Unearned
Rent
● Excess of warranty
expense over actual
expenditures
● Excess of uncollectible
accounts for financial
reporting over accounts
actually written off for tax
reporting
● Excess of financial
depreciation
● Provision for loss on
pending lawsuit
expected to be settled
during the next reporting
period

NO TAX DIFFERENCE (NATD) ● Recorded sales on credit

● Vested insurance claim
collected from the
insurance company and
paid to the beneficiary

1. Gains from settlement of the life insurance - NTI

2. Pretax financial income financial income are charitable contribution in excess of
the amount allowed by the revenue code - TTD
3. Premiums paid on the life insurance - NDE
4. Fines and Penalties paid - NDE
5. Tax Depreciation > Book Depreciation - TTD
6. Rent collected in advance (revenue in tax purpose, not recognized in financial
accounting purposes) - DTD
7. Warranty provision accrued in the books, not recognized in tax purposes until
paid - DTD