Gaña, Jayson M.A-531Deferred Tax

(NFJPIA – MOCKBOARD 2011)1. The following facts relate to Whammy Corporation for the year 2010:

• Deferred tax liability, January 1, P48,000• Deferred tax asset, January 1, P16,000.• Taxable income for the year, P430,000.• Cumulative temporary difference at December 31, giving rise to future taxable

amounts, P230,000.• Cumulative temporary difference at December 31, giving rise to the future deductible

amounts, P95,000.• Tax rate for all years, 35%.

No permanent differences exist. The company is expected to operate profitably in the future. What is the total tax expense?.

Solution:Current Tax(430000 x 35%) 150500

Inc. In DTL 32500Inc. In DTA 17250 15250

Total tax expense 165750

(Practical Accounting 1 – Mockboard)2. Mayen Company reported total tax expense of P2,000,000 in its 2012 statement of

comprehensive income. The following changes in Mayen’s tax assets and liabilities re available:

December 31, 2012 December 31, 2011 Deferred tax asset 150,000 350,000 Income tax payable 300,000 600,000 Deferred tax liability 250,000 500,000

The deferred tax liability was caused by accelerated depreciation and the deferred tax asset is for rentals received in advances. What is the current tax expense for 2012?

Solution:

Current Tax(430000 x 35%) 2,050,000.00 squeeze

Change In DTL 200,000.00

Change In DTA 250,000.00 (50,000.00)

Total tax expense 2,000,000.00

3. The following information was taken from Hedonistic Corporation’s 2011 income statements:

Income before income taxes 5,000,000Income tax expense:

Current 1,200,000Deferred 150,000 1,350,000

Net income 3,650,000

Hedonistic’ first year of operations was in 2011. The entity has a 30% tax rate. The deferred tax expense is the net total of deductible temporary differences of P200,000 and taxable temporary differences of P700,000. Also during the year, Hedonistic received dividends of P500,000 from its investments in domestic corporation. No other differences existed between accounting income and taxable income. What was the taxable income for 2011?

Solution:Taxable income (1,200,000 / 30%) P4,000,000

(NFJPIA 2013 – Mockboard)4. The JP Inc. operations resulted to regular corporate income tax (RCIT) amounting to P25,000,

with the minimum corporate income tax (MCIT) computed at P100,000. It is the first time that JP will be paying MCIT after operating for 7 years. The RCIT rate is 30% while MCIT rate is 2%. If JP expects that the company will be liable to MCIT next year, deferred tax asset to be recognized on the balance sheet for the year will be ?

Solution: ----- 0 ------

(2015 National Mockboard)5. The following facts relate to MJ Company

Deferred tax liability, January 1, 2014; P510,000: Deferred tax asset, January 1, 2014; P120,000 Pretax financial income for 2014; P2,000,000 Non-taxable revenues, P340,000; Non-deductible expenses, P210,000 Cumulative difference at December 31, 2014, giving rise to future taxable amounts,

P1,460,000 Cumulative difference at December 31, 2014, giving rise to future deductible amounts,

P510,000 Tax rate for current and future years 30% The deferred tax asset on December 31, 2014 is

Solution:

DTA, end (510,000 x 30%) P153,000

(2015 Regional Mockboard)6. Jason Company has taken out a foreign loan of $100,000 that is recorded at P4,400,000. At the

reporting date, the carrying value of the loan is P4,000,000. The unrealized exchange gain of P400,000 is included in profit or loss, but will be taxable when the gain is realized on the repayment of the loan. If the current and future tax rates are 34% and 35%, respectively, what amount of deferred tax liability should the company recognize?

Solution:DTL (400,000 x 35%) P140,000

(auditing problems – roque)Isay Inc. began operating on January 1, 2014. At the end of the first year of operation Isay reported P 7,500,000 income before income taxes on its income statement but only P700,000 taxable income on its tax return. Analysis of the P 6,800,000 difference revealed that P 6200000 was a permanent difference and P 600,000 was a temporary difference related to a current asset. At the end of 2015, the accumulated temporary difference related to future years is P1,100,000. Tax rate is 30%.

7. What is the adjustment on the DTL at the end of 2015?8. Assume that at the end of 2015 the accumulated temporary difference related to future years is

P550,000, what is the adjustment in DTL?

Solution:(7) DTL, Dec. 31, 2015(1,100,000 x 30%) P330,000 DTL, Dec. 31,2014(600,000 x 30%) 180,000 Inc. in DTL P150,000

(8) DTL, Dec. 31, 2015(550,000 x 30%) P165,000 DTL, Dec. 31,2014(600,000 x 30%) 180,000 Dec. in DTL (P15,000)

At Dec. 31, 2014; the company has a P900000 liability reported for estimated litifation claims. This balance represents amounts that have been charged to income but are not tax deductible until they are paid. The company epects to pay the claims and thus have a tax deductible in the future by P150,000 at 2017, P690000 at 2018 and P60000 at 2019.

The company uses different depreciation method for financila reporting and tax purposes. At Dec. 31, 2014 the company has a cumulative temporary difference due to depreciable property of P2,400,000. This P2,400,000 cumulative temporary difference is to result in taxable amounts in the future of equal amounts from 2015 to 2019.

Tax rate is 30%. Taxable income for 2014 is P2,400,000, the company expects to report taxable income for the next five years. No temporary difference existed at the end of 2013.

Solve for the follwing for December 31, 2014:9. DTL10. DTA 11. Current income tax payable12. Pre-tax accounting income13. Net income

Solution:(9)DTL (480000x5x30%) P720,000

(10)DTA(900000x30%) P270,000

(11)Income tax payable(2400000x30%) P720,000

(12) taxable income P2,400,000Difference in Depreciation 2,400,000Difference from Litigation (900,000)Pre-tax income P3,900,000

(13) Pretax Income P3,900,000Income tax expense(720000+450000) (1,170,000)Net Income P2,730,000

YOURWORTHIT INC. in its first year of operations, has the ff. differences between the carrying value and tax base of its of its assets and liabilities at the end of 2014:

Carrying value Tax BaseEquipment P800,000 P680,000Estimated warranty liability 400,000 -0-

Warranty liability is expected to be settled in 2015. While difference in equipment will be taxable by P40,000, P60,000, P20,000 in 2015,2016 and 2017 respectively. The company incurred P1,040,000 taxable income. Tax rate is 30%

Compute the ff. in Dec. 31, 2014:14. DTL15. DTA16. Current tax expense17. Total Income Tax

Solution:

(14) DTL (240000 x 30%) P36,000(15) DTA (400000 x 30%) P120,000(16) Current tax exp. (1040000 x 30%) P312,000(17) Current tax exp. P312,000

DTL 36,000DTA (120,000)Income tax expense P228,000

At Dec. 31, 2013, Galaga Corp. had a temporary difference (related to depreciation) and reported a related deferred tax liability of P60,000 on its statment of financial position. At december 31, 2014 Galaga has four temporary difference:

TemporaryDifference

Future taxable(deductable) Amounts2014 2015 Later year

1. Difference in depreciation for accounting and tax purposes

P160,000 P220,000 P760,000

2. Rent collected in advance (380,000)3. Accrued expenses (90,000)4. Installment sales 276,000 210,000

Total (P34000) P430,000 P760,000

Assume income tax of P435,000 for 2014. Installment receivable collctible in 2016 is classified as non-current. Tax rate is 30%. Compute the ff. amount in Dec. 31, 2014:

18. DTA19. DTL20. Pretax accounting income21. Net Income

Solution:(18)DTA ( 470000 x 30%) P141,000(19)DTL ( 1626000 x 30%) P487,800(20) Taxable Inc. (435000/30%) P1,450,000

Excess Depreciation 940,000Excess Rent (380,000)Excess Expenses (90,000)Excess Income 486,000

Pretax Accounting Income P2,406,000(21)Net Income (2406000-(427800+286800)) P1,684,200

(Practice Problems-Income Tax Accounting)Smith Company reported P350,000 in income before income tax for book purposes in 2010, itsfirst year of operation. The tax depreciation exceeded its book depreciation by P30,000. The tax rate for 2010 and all future years was 40%. Assume depreciation expense is the only temporary difference.

22. What amount of deferred income tax liability should Smith report in its December 31, 2010, balance sheet?

23. What amount of income taxes payable (i.e., current tax expense) should Smith report in its December 31, 2010, balance sheet?

24. Income tax expense reported on the income statement would be?

Solution:(22) DTL (30000 x 40%) P12,000(23)Current tax ((350000-30000) x 40%) P128,000(24)Total Expense(128000+12000) P140,000

25. During 2009, a company reported an increase in the deferred tax liability account of P77,990, an increase in thedeferred tax asset account of P35,325, and an income tax payable liability as per the 2009 income tax return of P398,555. What is the income tax expense to be reported on the income statement for the year ending December 31, 2009?

Solution:

Income tax Expense (398555+77990-35325) P441,220