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    Accounting For Income Tax-Notes

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    Maureen Derial Panta
    - The document discusses accounting for income taxes under IAS 12, including permanent and temporary differences between accounting income and taxable income. - Temporary differences result in deferred tax assets or liabilities, depending on whether the temporary difference is deductible or taxable. - The example shows the calculation of current and deferred tax expense for a company with accounting income of ₱10 million, including the journal entries.

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    Accounting For Income Tax-Notes

    Uploaded by

    Maureen Derial Panta
    184 views4 pages
    - The document discusses accounting for income taxes under IAS 12, including permanent and temporary differences between accounting income and taxable income. - Temporary differences result in deferred tax assets or liabilities, depending on whether the temporary difference is deductible or taxable. - The example shows the calculation of current and deferred tax expense for a company with accounting income of ₱10 million, including the journal entries.

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    Accounting for Income Tax-Notes

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    Accounting for Income Tax-Notes

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    - The document discusses accounting for income taxes under IAS 12, including permanent and temporary differences between accounting income and taxable income. - Temporary differences result in deferred tax assets or liabilities, depending on whether the temporary difference is deductible or taxable. - The example shows the calculation of current and deferred tax expense for a company with accounting income of ₱10 million, including the journal entries.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    184 views4 pages

    Accounting For Income Tax-Notes

    Uploaded by

    Maureen Derial Panta
    - The document discusses accounting for income taxes under IAS 12, including permanent and temporary differences between accounting income and taxable income. - Temporary differences result in deferred tax assets or liabilities, depending on whether the temporary difference is deductible or taxable. - The example shows the calculation of current and deferred tax expense for a company with accounting income of ₱10 million, including the journal entries.

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    © All Rights Reserved
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    of 4

    08/26/16

    Accounting for Income Tax (IAS 12) Notes


    -

    Accounting for the difference between accounting income and taxable income

    Permanent Difference revenue and expense items included in the computation of accounting income but never in the taxable
    income and vice versa
    Temporary Difference timing difference in the recognition of revenue and expense for accounting and tax purposes

    Temporary Difference

    Deferred
    Tax

    Deductible Temporary
    Difference

    DTA

    Taxable Temporary
    Difference

    DTL

    Taxable Income vs
    Accounting Income

    Taxable Income >


    Accounting Income

    Accounting Income >


    Taxable Income

    Revenue Item

    Expense Item

    Revenue included
    in taxable income
    but part of
    accounting
    income in the
    future
    Revenue part of
    the accounting
    income but
    included in
    taxable income in
    the future

    Expense deducted
    from accounting
    income but
    deducted from
    taxable income in
    the future
    Expense deducted
    from taxable
    income but
    deducted from
    accounting
    income in the
    future

    Revenue Item

    Expense Item

    Tax Return > Accounting Record

    DTA (-)

    DTL (+)

    Accounting Record > Tax Return

    DTL (+)

    DTA (-)

    Example:
    Accounting Net Income

    10,000,000

    Permanent Difference
    Nontaxable Income

    1,000,000

    Nondeductible Expense

    500,000

    Temporary Difference
    Taxable revenue in excess of revenue per books

    400,000

    Tax Expense

    in DTA = Tax Exp


    in DTA = Tax Exp

    in DTL = Tax Exp


    in DTL = Tax Exp

    Tax deductible expense in excess of expense per books

    600,000

    Solution:
    Accounting Net Income

    10,000,000

    Permanent Difference
    Nontaxable Income

    (1,000,000)

    Nondeductible Expense

    500,000

    Taxable Income

    9,500,000

    Tax rate

    x 30%

    Income Tax Payable / Current Income Tax Expense

    2,850,000

    Temporary Difference
    DTA (400,000 x .30)

    (120,000)

    DTL (600,000 x .30)

    180,000

    Provision for Income tax / Total Income tax expense

    2,910,000

    Journal Entry
    a.

    Income tax expense

    2,850,000

    Income tax payable


    b.

    Deferred tax asset

    2,850,000
    120,000

    Income tax expense/benefit


    c.

    Income tax expense


    Deferred tax liability

    120,000
    180,000
    180,000

    Example 2: ABC Co. Year 1


    Net Income

    8,000,000

    Estimated warranty expense

    800,000

    Actual warranty payment

    600,000

    Interest income on time deposit

    200,000

    Provision on life insurance of officers

    100,000

    Tax depreciation

    2,500,000

    Accounting depreciation

    2,000,000

    Rent received

    1,400,000

    Rent Income

    1,000,000

    Solution:
    Net Income

    8,000,000

    Permanent Difference
    Nontaxable

    ( 200,000)

    Nondeductible

    100,000

    Taxable Income

    7,900,000

    Tax rate

    x 30%

    Income tax payable

    2,370,000

    Temporary Difference
    DTA (600,000 x .30)

    ( 180,000)

    DTL ( 150,000 x .30)

    150,000

    Total Income tax expense

    2,340,000

    Journal Entry
    a.
    b.
    c.

    Income tax expense


    Income tax payable

    2370000

    Deferred tax asset


    Income tax expense/benefit

    180000

    Income tax expense


    Deferred tax liability

    150000

    2370000
    180000
    150000

    Assume on Year 2
    Estimated warranty liability

    100,000

    Warranty expense recognized

    800,000

    Unearned Rent Income

    200,000

    Rent income recognized

    1,200,000

    Estimated Warranty Liability

    (A) Warranty expense

    800,000

    600,000

    800,000 beg.

    (T) Warranty Payment

    900,000

    End

    100,000

    200,000 beg

    Paid

    900,000

    800,000 expense

    1,000,000

    100,000

    1,000,000

    Unearned Rent Income


    Rent Income 1,000,000
    End

    1,400,000 received

    200,000

    (A) Rent Income

    1,200,000
    200,000

    1,000,000 received
    1,400,000

    Adjustment to DTA

    Reversal of DTA recorded in Year 1

    Warranty

    100,000

    Rent

    200,000
    300,000

    Tax rate

    x .30
    90,000

    DTA
    180,000

    1,000,000

    400,000 beg.

    Rent Income 1,200,000


    1,400,000

    (T) Rent received

    90,000 END
    90,000

    Income tax expense

    90,000

    Deferred tax asset

    90,000

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