Income

Taxes
+ Understand its nature and purpose
+ Understand the requirements for its recognition
+ Know its initial and subsequent measurement
+ Presentation to the financial statements
 Nature Recognition
Income Definition and sample When to recognize
Taxes

Presentation
Measurement Transactions
Initial and subsequent Entries and sample
Disclosure
 Nature Recognition
Income Definition and sample When to recognize
Taxes

Presentation
Measurement Transactions
Initial and subsequent Entries and
Journal sample
entries
Disclosure
Income Taxes
PAS 12 Income Taxes
 Income Taxes
+ Tax levied by a government directly on income
+ Income upon which taxes are payable or recoverable
+ Taxable revenues less deductible expenses
 Nature Recognition
Income Definition When to recognize
Taxes

Presentation
Measurement Transactions
Initial and subsequent Journal entries
Disclosure
 “Taxes are the lifeblood of government and should be collected
without necessary hindrance. Without taxes, the government would
be paralyzed for lack of motive power to activate and operate it.”
 BUREAU OF INTERNAL REVENUE
Income Tax Description

Income Tax is a tax on a person's income, emoluments, profits

arising from property, practice of profession, conduct of trade or
business or on the pertinent items of gross income specified in
the Tax Code of 1997 (Tax Code), as amended, less the
deductions if any, authorized for such types of income, by the Tax
Code, as amended, or other special laws.
→ Required to File Income Tax
Individuals

✓ Resident citizens receiving income from

sources within or outside the Philippines
✓ Non-resident citizens receiving income from
sources within the Philippines
✓ Aliens, whether resident or not, receiving income
from sources within the Philippines
→ Required to File Income Tax
Non-Individuals

✓ Corporations including partnerships,

no matter how created or organized.
✓ Domestic corporations receiving income from
sources within and outside the Philippines
✓ Foreign corporations receiving income from
sources within the Philippines
✓ Estates and trusts engaged in trade or business
 PAS 12 – INCOME TAXES
Objective of PAS 12

Prescribethe accounting treatment for income taxes

 PAS 12 – INCOME TAXES
Objective of PAS 12

An entity should account for the tax consequences of

transactions and other events in the same way it accounts for the
transactions or other events themselves.
 PAS 12 – INCOME TAXES
Objective of PAS 12

It is inherent in the recognition of an asset or liability that that

asset or liability will be recovered or settled, and this recovery or
settlement may give rise to future tax consequences which
should be recognized at the same time as the asset or liability
 Taxable revenues
(-) Deductible expenses
Taxable Income
x Taxable Rate
Income Tax Expense
 Corporate Income Tax

RCIT MCIT
Regular Corporate Minimum Corporate
Income Tax Income Tax

2% of Gross Income
25% of Taxable Income Beginning in the fourth
In general, on net income taxable year following the
from all sources. year of commencement of
business operations.

Higherbetween RCIT and MCIT

 Nature Recognition
Income Definition When to recognize
Taxes

Presentation
Measurement Transactions
Initial and subsequent Journal entries
Disclosure
 PAS 12.12 – INCOME TAXES
Current Tax

Current tax for the current and prior periods is recognized as a

liability to the extent that it has not yet been settled, and as an
asset to the extent that the amounts already paid exceed the
amount due.
 PAS 12.24 – INCOME TAXES
Deferred Tax Assets and Liabilities

A deferred tax asset is recognized for deductible temporary

differences, unused tax losses and unused tax credits to the extent
that it is probable that taxable profit will be available against which the
deductible temporary differences can be utilized

Deferred tax liability is recognized for all taxable temporary

differences.
 Current tax for the period
+ Movement in deferred tax balances for the period
Income Tax Expense for the period
→ Key Definitions
Income Taxes Key Definitions

Tax The tax base of an asset or liability is the amount

Base attributed to that asset or liability for tax purposes

Differences between accounting income and

Difference
taxable income
 Arisingfromincomeorexpense,whichare
Permanent consideredunderaccountingincome,but
Difference
Differences wouldneverbeconsideredundertaxable
income,andviceversa.

Arisingfromincomeorexpenseonwhichthe
Temporary periodortimingofrecognitionunder
Differences accountingincomeisdifferentfromthatof
taxableincome.
 Nature Recognition
Income Definition When to recognize
Taxes

Presentation
Measurement Transactions
Initial and subsequent Journal entries
Disclosure
 Accounting Procedure for Income Tax

1 2 3 4 5

Current Deferred Deferred Total

Taxable
Income Tax Tax Tax Income Tax
Income
Expense Liability Asset Expense
 Accounting Income
Permanent Differences
- Nontaxable Income
+ Nondeductible Expense
Income Subject to Tax
Temporary Differences
- Future Taxable Income
+ Future Deductible Expense
Taxable Income
 Arisingfromincomeorexpense,whichare
Permanent consideredunderaccountingincome,but
Difference
Differences wouldneverbeconsideredundertaxable
income,andviceversa.

Arisingfromincomeorexpenseonwhichthe
Temporary periodortimingofrecognitionunder
Differences accountingincomeisdifferentfromthatof
taxableincome.
 Notsubjecttoincometax
Permanent Nontaxable
Difference becauseitisexempted or
Differences Income
subjectedtofinaltax

Non-
Notallowedtoberecognized
deductible
ordeductedfortaxpurposes
Expenses
→ Permanent Differences
Examples of Permanent Differences

✗ Interest income on bank savings deposits, time deposits, deposit

substitutes and money market placement
Subject to a final tax
✗ Interest income on government or municipal bonds and treasury bills
Not subject to tax
✗ Gains subject to capital gains tax
Subject to a capital gain tax
→ Permanent Differences
Examples of Permanent Differences

✗ Dividend income received by a domestic corporation from a

domestic corporation
Not subject to tax
✗ Dividend income received by a non-resident foreign corporation from
a domestic corporation
Subject to final tax
✗ Gain on settlement of life insurance of employees where the entity is
the beneficiary
Subject to final tax
→ Permanent Differences
Examples of Permanent Differences

✗ Life insurance premium paid when the entity is the beneficiary

Subject to final tax
✗ Fines, penalties and surcharges for violations of laws
Not deductible to tax computation
✗ Charitable contributions in excess of tax limitation
Limited deduction to tax computation
 Arisingfromincomeorexpense,whichare
Permanent consideredunderaccountingincome,but
Difference
Differences wouldneverbeconsideredundertaxable
income,andviceversa.

Arisingfromincomeorexpenseonwhichthe
Temporary periodortimingofrecognitionunder
Differences accountingincomeisdifferentfromthatof
taxableincome.
 Taxable Futuretaxableamount(FTA)
Difference Temporary thatgivesrisetodeferredtax
Difference liability(DTL)

Deductible Futuredeductibleamount
Temporary
Temporary (FDA)thatgivesriseto
Differences
Difference deferredtaxasset(DTA)
 Taxable Future Deferred
Temporary
Temporary Taxable Tax
Differences
Difference Amount Liability

Accounting Income > Taxable Income

Carrying Amount Asset > Tax Base Asset
Carrying Amount Liability < Tax Base Liability
→ Taxable Temporary Difference
Future Taxable Amount – Deferred Tax Liability

✓ Revenues and gains included in accounting income

of the current period but taxable in future periods
✓ Expenses and losses are deductible for tax
purposes in the current period but deductible for
accounting purposes in future periods
→ Taxable Temporary Difference
Revenues and Gains - Deferred Tax Liability

✓ Installment sale included in accounting at time of

sale and included in taxable income when
cash is collected in future periods
→ Taxable Temporary Difference
Expenses and Losses - Deferred Tax Liability

✓ Accelerated depreciation for tax and straight line

depreciation for accounting
✓ Development cost capitalized and amortized in
accounting but deducted in taxable income in the
period of payment
✓ Prepaid expenses already deducted on a cash basis
in determining taxable income of current period
→ Taxable Temporary Difference
Other Taxable Temporary Differences - Deferred Tax Liability

✓ Asset revalued upward and no equivalent

adjustment made for tax purposes
✓ Carrying amount of investment in subsidiary,
associate or joint venture is higher than the
tax base because income has not distributed
to parent or investor
✓ Acquisition cost of business combination allocated
to identifiable assets and liabilities at fair value
→ Taxable Temporary Difference
NOT Recognized Deferred Tax Liability

✗ Goodwill resulting from a business combination

✗ Initial recognition of an asset or liability in a transaction that is not
a business combination and affects neither accounting nor taxable
income
✗ Undistributed profit of subsidiary, associate or joint venture when
the parent, investor or venturer is able to control the timing of the
reversal of the temporary difference
 PAS 12.24 – INCOME TAXES
Deferred Tax Liabilities

Deferred tax liability is recognized for all taxable temporary

differences (with exceptions).
Sample Problem #1: Deferred Tax Liability (Prepaid Rent)

On January 1, 2023, the Company paid in advance a 4-year rent amounting to P400,000 and will be
amortized over 4 years. The Company reported a profit of P3,000,000 for the year 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Accounting Accounting income 3,000,000

Taxable Income Difference
Income Less: FTA 300,000
3,000,000 2,700,000 300,000 Add: FDA
(3,000,000 – 300,000 Taxable Income 2,700,000
unamortized prepaid rent) Tax Rate 25%
Carrying Current tax expense 675,000
Tax Base Asset Difference
Amount Asset FTA 300,000
300,000 0 300,000 Less: FDA 0
Net future taxable amount 300,000
Tax Rate 25%
Deferred tax expense 75,000
Sample Problem #1: Deferred Tax Liability (Prepaid Rent)

On January 1, 2023, the Company paid in advance a 4-year rent amounting to P400,000 and will be
amortized over 4 years. The Company reported a profit of P3,000,000 for the year 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Dec 31 Dr Income tax expense 675,000

2023 Cr Income tax payable 675,000
To record the current tax expense
Dr Income tax expense 75,000
Cr Deferred tax liability 75,000
To record the deferred tax liability
Sample Problem #1: Deferred Tax Liability (Prepaid Rent)

On January 1, 2023, the Company paid in advance a 4-year rent amounting to P400,000 and will be
amortized over 4 years. The Company reported a profit of P3,000,000 for the year 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Income before tax 3,000,000

Income tax expense:
Current tax expense 675,000
Deferred tax expense 75,000
Net income 2,250,000
 Deductible Future Deferred
Temporary
Temporary Deductible Tax
Differences
Difference Amount Asset

Accounting Income < Taxable Income

Carrying Amount Asset < Tax Base Asset
Carrying Amount Liability > Tax Base Liability
→ Deductible Temporary Difference
Future Deductible Amount – Deferred Tax Asset

✓ Revenues and gains included in taxable income

of the current period but included in accounting
for future periods
✓ Expenses and losses are deducted from
accounting income of current period but are
deductible for tax purposes in future periods
→ Deductible Temporary Difference
Revenues and Gains – Deferred Tax Asset

✓ Rent received in advance is taxable at the time of

receipt but deferred in the future periods for
accounting purposes
→ Deductible Temporary Difference
Expenses and Losses – Deferred Tax Asset

✓ Litigation loss is recognized for accounting but

deducted in determining taxable income when
incurred or paid
✓ Estimated product warrant cost is recognized
in accounting for the current period but deducted
in taxable income when incurred or paid
✓ Research cost is recognized as expense in
accounting but not permitted as deduction in
taxable income until a later period
→ Deductible Temporary Difference
Expenses and Losses – Deferred Tax Asset

✓ Impairment loss is recognized for accounting but

ignored for tax purposes until the asset is disposed
✓ Doubtful accounts recognized as expense for
accounting but deductible for tax purposes only
when written off as worthless
→ Deductible Temporary Difference
Other Deductible Temporary Differences - Deferred Tax Asset

✓ Asset revalued downward and no equivalent

adjustment made for tax purposes
✓ Tax base of investment in subsidiary, associate or
joint venture is higher than the carrying amount
because the subsidiary, associate or joint venture
has suffered continuing losses in current and
prior years.
 PAS 12.24 – INCOME TAXES
Deferred Tax Assets

A deferred tax asset is recognized for deductible temporary

differences, unused tax losses and unused tax credits to the extent
that it is probable that taxable profit will be available against which the
deductible temporary differences can be utilized
 PAS 12.37 – INCOME TAXES
Deferred Tax Assets – Carrying Amount

The carrying amount of deferred tax assets are reviewed at the end
of each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow the
benefit of part or all of that deferred tax asset to be utilized. Any such
reduction is subsequently reversed to the extent that it becomes
probable that sufficient taxable profit will be available.
Sample Problem #2.1: Deferred Tax Asset (Advance Rent)

On January 1, 2023, the Company received a 4-year advance rent amounting to P400,000 and will be
amortized over 4 years. The Company reported a profit of P3,000,000 for the year 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Accounting Accounting income 3,000,000

Taxable Income Difference
Income Less: FTA
3,000,000 3,300,000 (300,000) Add: FDA 300,000
(3,000,000 + 300,000 Taxable Income 3,300,000
advance rent balance) Tax Rate 25%
Carrying Current tax expense 825,000
Amount Tax Base Liability Difference FTA 0
Liability Less: FDA 300,000
300,000 0 300,000 Net future deductible
amount (300,000)
Tax Rate 25%
Deferred tax expense (75,000)
Sample Problem #2.1: Deferred Tax Asset (Advance Rent)

On January 1, 2023, the Company received a 4-year advance rent amounting to P400,000 and will be
amortized over 4 years. The Company reported a profit of P3,000,000 for the year 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Dec 31 Dr Income tax expense 825,000

2023 Cr Income tax payable 825,000
To record the current tax expense
Dr Deferred tax asset 75,000
Cr Income tax expense 75,000
To record the deferred tax asset
Sample Problem #2.1: Deferred Tax Asset (Advance Rent)

On January 1, 2023, the Company received a 4-year advance rent amounting to P400,000 and will be
amortized over 4 years. The Company reported a profit of P3,000,000 for the year 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Income before tax 3,000,000

Income tax expense:
Current tax expense 825,000
Deferred tax expense (benefit) (75,000)
Net income 2,250,000
Sample Problem #2.2: Deferred Tax Asset (Doubtful Accounts)

On December 31, 2023, the Company had a provision for doubtful accounts of P100,000 and were
written off in January 2024. The Company reported a profit of P500,000 in 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Accounting Accounting income 500,000

Taxable Income Difference
Income Less: FTA 0
500,000 600,000 (100,000) Add: FDA 100,000
(500,000 + 100,000 Taxable Income 600,000
provision) Tax Rate 25%
Carrying Current tax expense 150,000
Tax Base Asset Difference
Amount Asset FTA 0
(100,000) 0 (100,000) Less: FDA 100,000
Net future taxable amount (100,000)
Tax Rate 25%
Deferred tax expense (25,000)
Sample Problem #2.2: Deferred Tax Asset (Doubtful Accounts)

On December 31, 2023, the Company had a provision for doubtful accounts of P100,000 and were
written off in January 2024. The Company reported a profit of P500,000 in 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Dec 31 Dr Income tax expense 150,000

2023 Cr Income tax payable 150,000
To record the current tax expense
Dr Deferred tax asset 25,000
Cr Income tax expense 25,000
To record the deferred tax asset
Sample Problem #2.2: Deferred Tax Asset (Doubtful Accounts)

On December 31, 2023, the Company had a provision for doubtful accounts of P100,000 and were
written off in January 2024. The Company reported a profit of P500,000 in 2023. Tax rate is 25%.

Compute for the current tax and deferred tax expenses

Income before tax 500,000

Income tax expense:
Current tax expense 150,000
Deferred tax expense (25,000)
Net income 375,000
 Nature Recognition
Income Definition When to recognize
Taxes

Presentation
Measurement Transactions
Initial and subsequent Journal entries
Disclosure
Sample Problem #3.1: Deferred Tax Asset and Liability

On December 31, 2023, the Company reported the following for the year:

Accounting income 6,000,000

Nondeductible expense 500,000
Nontaxable revenue 300,000
Doubtful accounts 200,000
Estimated warranty cost that had been
recognized as expense in 2023 when the
product sales were made but is
deductible for tax purposes when paid 400,000
Accounting depreciation 600,000
Tax depreciation 800,000
Gross income on installment sale included
in accounting income but taxable only in
2024 100,000
Income tax rate 25%

Compute for the current tax and deferred tax expenses

 Compute for the current tax and deferred tax expenses

Accounting income 6,000,000

Permanent differences:
1 Nondeductible expense 500,000
Nontaxable revenue (300,000)
Accounting income subject to tax 6,200,000
Taxable Taxable temporary differences (DTL):
Income Gross income on installment sales (100,000)
Excess tax depreciation (200,000)
Deductible temporary differences (DTA):
Doubtful accounts 200,000
Estimated warranty cost 400,000
Taxable income 6,500,000
 Compute for the current tax and deferred tax expenses

Current Taxable income 6,500,000

Income Tax Tax rate 25%
Current tax expense 1,625,000
Expense

Dec 31 Dr Income tax expense 1,625,000

2023 Cr Income tax payable 1,625,000
To record the current tax expense
 Compute for the current tax and deferred tax expenses

Deferred Gross income on installment sale 100,000

Tax Excess tax depreciation 200,000
Total taxable temporary differences 300,000
Liability
Tax rate 25%
Deferred tax liability 75,000

Dec 31 Dr Income tax expense 75,000

2023 Cr Deferred tax liability 75,000
To record the deferred tax liability
 Compute for the current tax and deferred tax expenses

Deferred Doubtful accounts 200,000

Tax Estimated warranty cost 400,000
Total deductible temporary differences 600,000
Asset
Tax rate 25%
Deferred tax asset 150,000

Dec 31 Dr Deferred tax asset 150,000

2023 Cr Income tax expense 150,000
To record the deferred tax asset
 Compute for the current tax and deferred tax expenses

5
Income before tax 6,000,000
Total Income tax expense:
Current tax expense 1,625,000
Income Tax Deferred tax expense 75,000
Expense Deferred tax benefit (150,000) 1,550,000
Net income 4,450,000
Sample Problem #3.2: Deferred Tax Asset and Liability

On December 31, 2023, the Company reported accounting income of P10,000,000 and recorded the
same basis for accounting and tax purposes except:
Carrying
Tax Base Difference
Amount
Software cost 4,000,000 0 4,000,000
Building 47,500,000 45,000,000 2,500,000
In January 2023, the Company incurred cost of P5,000,000 for the development of software.
Considering the technical feasibility of the product, this cost was capitalized and amortized over 5 years
for accounting purposes using the straight-line method.
The building was acquired in January 2023 for P50,000,000 and depreciated using the straight-line at
5% for accounting purposes and 10% for tax purposes.

Compute for the current tax and deferred tax expenses using 25% tax rate
 Compute for the current tax and deferred tax expenses using 25% tax rate

Accounting income 10,000,000

Permanent differences:
1 Nondeductible expense 0
Nontaxable revenue 0
Accounting income subject to tax 10,000,000
Taxable Taxable temporary differences (DTL):
Income Capitalizable development cost (4,000,000)
Excess tax depreciation (2,500,000
Deductible temporary differences (DTA): 0
Taxable income 3,500,000
 Compute for the current tax and deferred tax expenses using 25% tax rate

Current Taxable income 3,500,000

Income Tax Tax rate 25%
Current tax expense 875,000
Expense

Dec 31 Dr Income tax expense 875,000

2023 Cr Income tax payable 875,000
To record the current tax expense
 Compute for the current tax and deferred tax expenses using 25% tax rate

Deferred Software cost 4,000,000

Tax Excess tax depreciation 2,500,000
Total taxable temporary differences 6,500,000
Liability
Tax rate 25%
Deferred tax liability 1,625,000

Dec 31 Dr Income tax expense 1,625,000

2023 Cr Deferred tax liability 1,625,000
To record the deferred tax liability
 Compute for the current tax and deferred tax expenses using 25% tax rate

Deferred Total deductible temporary differences 0

Tax Tax rate 25%
Deferred tax asset 0
Asset

Dec 31 No entry
2023

To record the deferred tax asset

 Compute for the current tax and deferred tax expenses using 25% tax rate

5
Income before tax 10,000,000
Total Income tax expense:
Current tax expense 875,000
Income Tax Deferred tax expense 1,625,000 2,500,000
Expense Net income 7,500,000
 Operating Loss

NOLCO
Net Operating Loss Carry-Over

Deduction to Taxable DeferredTax Asset

Income NOLCO xTax Rate

Can be used as deductionin 3 consecutive taxable years

 Accounting Income
Permanent Differences
- Nontaxable Income
+ Nondeductible Expense
Income Subject to Tax
Temporary Differences
- Future Taxable Income
+ Future Deductible Expense
Taxable Income
- NOLCO
Taxable Income After NOLCO
Net operating loss means the excess of allowable deductions over
the gross income of the business in a taxable year
 NATIONAL INTERNAL REVENUE CODE
Net Operating Loss Carry-Over

Net Operating Loss Carry-Over (“NOLCO”) as a deduction from

gross income is available to the taxpayer for the next three
consecutive taxable years following the year in when it was incurred.
At present, if the taxpayer incurs an operating loss in year 1 but
eventually registers a gain or profit in year 2, the NOLCO may be
offset against the resulting gain or profit so that no income taxes may
be due and owing the government.
 Corporate Income Tax

RCIT MCIT
Regular Corporate Minimum Corporate
Income Tax Income Tax

2% of Gross Income
25% of Taxable Income Beginning in the fourth
DeferredTax Asset
In general, on net income taxable year following the
Excess of MCIT over RCIT
from all sources. year of commencement of
business operations.
Can be used as tax credit
Higherbetween RCIT and MCIT
against tax liability
 NATIONAL INTERNAL REVENUE CODE
Minimum Corporate Income Tax

A minimum corporate income tax (MCIT) of two percent (2%) of the

gross income as of the end of the taxable year (whether calendar or
fiscal year, depending on the accounting period employed) is hereby
imposed upon any domestic corporation beginning the fourth (4th)
taxable year immediately following the taxable year in which such
corporation commenced its business operations. The MCIT shall be
imposed whenever such corporation has zero or negative taxable
income or whenever the amount of minimum-corporate income tax
is greater than the normal income tax due from such corporation.
 NATIONAL INTERNAL REVENUE CODE
Carry Forward of Excess Minimum Corporate Income Tax

Any excess of the minimum corporate income tax (MCIT) over the
normal income tax as computed under Sec. 27(A) of the Code shall be
carried forward on an annual basis and credited against the normal
income tax for the three (3) immediately succeeding taxable years.
 Regular Corporate Income Tax (RCIT)
Minimum Corporate Income Tax (MCIT)
Current Tax Expense (whichever is higher)
- Application of excess MCIT over RCIT
Current Tax Liability
 PAS 12.34 – INCOME TAXES
Deferred Tax Assets – Tax Loss Carryforward

A deferred tax asset is recognized for an unused tax loss

carryforward or unused tax credit if, and only if, it is considered
probable that there will be sufficient future taxable profit against
which the loss or credit carryforward can be utilized.
 PAS 12.37 – INCOME TAXES
Deferred Tax Assets – Carrying Amount

The carrying amount of deferred tax assets are reviewed at the end
of each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow the
benefit of part or all of that deferred tax asset to be utilized. Any such
reduction is subsequently reversed to the extent that it becomes
probable that sufficient taxable profit will be available.
 Nature Recognition
Income Definition When to recognize
Taxes

Presentation
Measurement Transactions
Initial and subsequent Journal entries
Disclosure
→ Presentation of Income Tax Expense
Statement of Financial Performance

Statement of Deduction to
Financial Income
Performance Before Tax
 PAS 12.74 – INCOME TAXES
Presentation of Income Tax Expense

The amount of tax expense (or income) related to profit or loss is

required to be presented in the statement(s) of profit or loss and
other comprehensive income.
 PAS 12.91 – INCOME TAXES
Presentation of Income Tax Expense

The tax effects of items included in other comprehensive income can

either be shown net for each item, or the items can be shown before
tax effects with an aggregate amount of income tax for groups of
items (allocated between items that will and will not be reclassified to
profit or loss in subsequent periods).
 SAMPLE COMPANY
STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED DECEMBER 31, 2022

Net sales 9,000,000

Cost of goods sold (5,400,000)
Gross income 3,600,000
Other income 900,000
Investment income 500,000
Total income 5,000,000
Expenses
Distribution costs 1,350,000
Administrative expenses 1,000,000
Other expenses 320,000
Finance cost 200,000 2,870,000
Income before tax 2,130,000
Income tax expense 580,000
Net income 1,550,000
 SAMPLE COMPANY
STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED DECEMBER 31, 2022

Net sales 9,000,000

Cost of goods sold (5,400,000)
Gross income 3,600,000
Other income 900,000
Investment income 500,000
Total income 5,000,000
Expenses
Distribution costs 1,350,000
Administrative expenses 1,000,000
Other expenses 320,000
Finance cost 200,000 2,870,000
Income before tax 2,130,000
Income tax expense 580,000
Net income 1,550,000
→ Presentation of Current Tax Asset/Liability
Statement of Financial Position

Statement of Asset or
Financial Liability
Position
Current
 PAS 12.71 – INCOME TAXES
Presentation of Current Tax Asset or Liability

Current tax assets and current tax liabilities can only be offset in the
statement of financial position if
(1)the entity has the legal right and
(2)the intention to settle on a net basis.
→ Presentation of Deferred Tax Asset/Liability
Statement of Financial Performance

Statement of Asset or
Financial Liability
Position
Noncurrent
 PAS 1.32 – PRESENTATION OF FS
Offsetting

Assets and liabilities, and income and expenses, may not be offset
unless required or permitted by an IFRS.
 PAS 12.74 – INCOME TAXES
Presentation of Deferred Tax Asset or Liability

Deferred tax assets and deferred tax liabilities can only be offset in
the statement of financial position if
(1)the entity has the legal right to settle current tax amounts

on a net basis and

(2)the deferred tax amounts are levied by the same taxing authority

on the same entity or different entities that intend to realize the asset
and settle the liability at the same time.
 SAMPLE COMPANY
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2022

ASSETS LIABILITIES AND EQUITY

Current assets: Current liabilities:
Cash and cash equivalents 500,000 Trade and other payables 750,000
Financial assets at fair value 200,000 Provision for income tax 400,000
Trade receivables 700,000 Current portion of bonds payable 200,000
Nontrade receivables 50,000 Warranty liability 50,000
Inventories 900,000 Total current liabilities 1,400,000
Total current assets 2,350,000
Noncurrent liabilities:
Noncurrent assets: Bonds payable - remaining portion 1,800,000
Nontrade receivables 1,000,000 Note payable-due July 1, 2024 600,000
Property, plant and equipment 5,000,000 Deferred tax liability 100,000
Long-term investments 5,100,000 Total noncurrent liabilities 2,500,000
Intangible assets 2,000,000 Equity:
Deferred tax asset 100,000 Share capital, P100 par 5,000,000
Total noncurrent assets 13,200,000 Reserves 3,000,000
Retained earnings 3,650,000
Total equity 11,650,000
Total assets 15,550,000 Total liabilities and equity 15,550,000
 SAMPLE COMPANY
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2022

ASSETS LIABILITIES AND EQUITY

Current assets: Current liabilities:
Cash and cash equivalents 500,000 Trade and other payables 750,000
Financial assets at fair value 200,000 Provision for income tax 400,000
Trade receivables 700,000 Current portion of bonds payable 200,000
Nontrade receivables 50,000 Warranty liability 50,000
Inventories 900,000 Total current liabilities 1,400,000
Total current assets 2,350,000
Noncurrent liabilities:
Noncurrent assets: Bonds payable - remaining portion 1,800,000
Nontrade receivables 1,000,000 Note payable-due July 1, 2024 600,000
Property, plant and equipment 5,000,000 Deferred tax liability 100,000
Long-term investments 5,100,000 Total noncurrent liabilities 2,500,000
Intangible assets 2,000,000 Equity:
Deferred tax asset 100,000 Share capital, P100 par 5,000,000
Total noncurrent assets 13,200,000 Reserves 3,000,000
Retained earnings 3,650,000
Total equity 11,650,000
Total assets 15,550,000 Total liabilities and equity 15,550,000
 Nature Recognition
Income Definition When to recognize
Taxes

Presentation
Measurement Transactions
Initial and subsequent Journal entries
Disclosure
→ Disclosures for Income Taxes
Notes to Financial Statements

+ Components of total income tax expense

+ Explanation between income tax and accounting profit
+ Applicable tax rate
+ Aggregate amount of current and deferred tax
+ Aggregate amount of temporary differences
associated with investments in subsidiary, associate,
joint venture which no deferred tax liability recognized
+ Analysis of balances of deferred tax asset and liability