EXAMPLE 1:
Accounting net income
Permanent Differences:
Nontaxable income
Nondeductible expenses
Accounting income subject to tax
Deductible temporary difference
Excess of expenses per books over allowable deductions per ITR
Taxable temporary difference
Excess of revenues per books over taxable revenues per ITR
Taxable Income
INCOME STATEMENT PRESENTATION FOR 2020
Income before income tax
Income tax expense
Current tax expense ₱3,360,000.00
Income tax benefit -₱150,000.00
Deferred tax expense ₱240,000.00
Net Income
SUMMARY OF ANSWERS:
Q1 Current Tax Expense ₱3,360,000.00
Q2 Deferred Tax Expense ₱240,000.00
Q3 Total Tax Expense ₱3,450,000.00
Q4 Income Tax Payable ₱3,360,000.00
Q5 Deferred Tax Liability ₱240,000.00
Q6 Deferred Tax Asset ₱150,000.00
EXAMPLE 2
HISTORICAL COST
Equipment 7,200,000.00
Less: Accumulated Depreciation - Equipment - 2,700,000.00
Carrying Amount 4,500,000.00
EXAMPLE 3
Income before tax ₱7,000,000.00
Less: Permanent Difference - 500,000.00
Accounting income subject to tax ₱6,500,000.00
Multiply by income tax rate 30%
TOTAL INCOME TAX EXPENSE 1,950,000.00
ANOTHER COMPUTATION:
Current Tax Expense 1,830,000.00
Deferred Tax Expense 120,000.00
TOTAL INCOME TAX EXPENSE 1,950,000.00
EXAMPLE 4
Pretax accounting income 5,000,000.00
Less: Nontaxable revenues - 375,000.00
Add: Nondeductible expenses 250,000.00
Accounting income subject to tax 4,875,000.00
Add: Deductible temporary difference
Provision for doubtful accounts 125,000.00
Estimated warranty cost 125,000.00
Less: Taxable temporary difference
Excess of tax depreciation over accouting depreciation - 62,500.00
Unearned income reported in financial statement - 562,500.00
Taxable income 4,500,000.00
INCOME STATEMENT PRESENTATION FOR 2020
Income before income tax
Income tax expense
Current tax expense ₱1,350,000.00
Income tax benefit -₱75,000.00
Deferred tax expense ₱187,500.00
Net Income
NET DEFERRED TAX EXPENSE OR BENEFIT
Deferred tax expense 187,500.00
Less: Income tax benefit - 75,000.00
NET DEFERRED TAX EXPENSE 112,500.00
BOOKS OF EVC COMPANY
12,000,000.00 Date Account Title and Description
YEAR 2020
- 1,200,000.00 12/31/2020 Income Tax Expense
700,000.00 Income Tax Payable
11,500,000.00
500,000.00 12/31/2020 Deferred tax asset
Income tax benefit
- 800,000.00
11,200,000.00
12/31/2020 Income tax expense
Deferred tax liability
12,000,000.00
-₱3,450,000.00
8,550,000.00
REPLACEMENT COST APPRECIATION BOOKS OF DIFFICULT COMPANY
10,800,000.00 3,600,000.00 Date Account Title and Description
- 4,050,000.00 - 1,350,000.00 1/1/2017 Equipment
6,750,000.00 2,250,000.00 Accumulated Depreciation
Revaluation Surplus
1/1/2017 Revaluation Surplus
Deferred Tax Liability
12/31/2017 Depreciation Expense
Accumulated Depreciation
12/31/2017 Revaluation Surplus
Retained Earnings
12/31/2017 Income tax expense
Income Tax Payable
12/31/2017 Deferred Tax Liability
Income Tax Expense
BOOKS OF MATRIX COMPANY
Date Account Title and Description
YEAR 2020
12/31/2019 Income Tax Expense
Income Tax Payable
12/31/2019 Deferred tax asset
Income tax benefit
12/31/2019 Income tax expense
Deferred tax liability
5,000,000.00
-₱1,462,500.00
3,537,500.00
BOOKS OF EVC COMPANY
Account Title and Description PR DR CR
YEAR 2020
Income Tax Expense ₱3,360,000.00
Income Tax Payable ₱3,360,000.00
to record the current tax expense
Deferred tax asset ₱150,000.00
Income tax benefit ₱150,000.00
to record the deferred tax asset
Income tax expense ₱240,000.00
Deferred tax liability ₱240,000.00
to record the deferred tax liability
BOOKS OF DIFFICULT COMPANY
Account Title and Description PR DR CR
₱3,600,000.00
Accumulated Depreciation ₱1,350,000.00
Revaluation Surplus ₱2,250,000.00
to record the revaluation
Revaluation Surplus ₱787,500.00
Deferred Tax Liability ₱787,500.00
to record the deferred tax liability
Depreciation Expense ₱1,350,000.00
Accumulated Depreciation ₱1,350,000.00
to record depreciation for the year
Revaluation Surplus 292,500.00
Retained Earnings 292,500.00
to record the piecemeal realization of RS
Income tax expense ₱2,835,000.00
Income Tax Payable ₱2,835,000.00
to record the current tax expense
Deferred Tax Liability ₱157,500.00
Income Tax Expense ₱157,500.00
to record the decrease of deferred tax liability
BOOKS OF MATRIX COMPANY
Account Title and Description PR DR CR
YEAR 2020
Income Tax Expense ₱1,350,000.00
Income Tax Payable ₱1,350,000.00
to record the current tax expense
Deferred tax asset ₱75,000.00
Income tax benefit ₱75,000.00
to record the deferred tax asset
Income tax expense ₱187,500.00
Deferred tax liability ₱187,500.00
to record the deferred tax liability
