Slide 1

Good afternoon everyone, my assigned topic is the Accounting for income tax which is under
PAS 12. Accordingly, mas madali daw maintindihan itong accounting for income tax if natapos mo na ang
income tax na subject since yung concept talaga about sa tax is nandoon at since si accounting is
sumusunod kay income tax dito.

Slide 2

So first, let us distinguish the difference between the accounting income and taxable income.
Accunting income is the net income for the period before deducting income tax expense and is
computed in accordance with accounting standards, so dito yung regular nating ginagawa na revenue
less expenses equals to net income before tax less yung income tax expense then we get the net income
after tax which I know na very familiar na sa atin, yung taxable income naman is yung income for the
period computed in accordance with the rules established by the taxation authorities upon which
income taxes are payable and recoverable. The main reason na magkaiba cla is because iba ang concept
nila in terms sa pagdetermine ng revenue and expenses. Dito kasi sa taxable income though sinusunod
naman natin yung computation sa accounting na revenue less expenses however may adjustments
tayong ginagawa kasi nga sa concept ni taxation itong may mga certain which is kinonsider ni accounting
pero kay taxation ay hindi.

Slide 3

There are 2 types of differences between accounting and taxable income the permanent and
temporary difference.

Slide 4

Yung permanent difference are those items of revenue and expense which are included in either
accounting income or taxable income but will never be included in the other. Sa permanent difference
mayroon tayong nontaxable revenue- ito yung mga revenues na obvious naman sa word na nontaxable
na hindi dapat mainclude or marecognize dahil nga hindi siya subject for income tax kaya ang ginagawa
natin diyan is dinededuct natin. Yung isa naman which is nondeductible expense ito naman yung mga
expenses na hindi allowed as deduction for income tax purposes kaya ang ginagawa diyan is ina.add.
kaya yung nontaxable revenue dinideduct and nondeductible expense is ina.add in order to compute the
accounting income subject to tax.

Slide 5

Yung other type nman na difference is yung temporary difference ito yung mga items
na.nirerecognized pareho ng accounting at ng tax yun nga lang hindi sabay which is pwede nating
ma.associate yung word na timing difference.

May 2 types of methods of accounting which are statement of financial position approach and
income statement approach.

Yung financial position approach, Diba nga according sa definition ng temporary difference it includes
yung carrying amount ng asset at nga liability so saan ba makikita yung mga account nay un dba sa sfp
that’s why we have this type of approach. it includes yung other temporary difference ito yung mga
items na hindi nakakaapekto ng income and expenses kaya hindi siya pwede sa income statement
approach but rather yung naapektuahn lng dito is yung real accounts; and timing difference bakit
included dito yung timing difference kasi nga yung revenue and expenses at the end of the period is
pumupunta din naman sa asset at liabilities at hindi rin naman dba makokompleto yung entry ng ncome
and expense kung hindi papartneran nga either asset or liability.

Yung income statement approach naman dito yung timing difference talaga kasi according sa definition
sa timing difference these are items of income and expense which are included in both accounting
income and taxable income but at different periods.

Slide 6

There are two kinds of temporary difference the taxable temporary difference which gives rise to future
taxable amount ito yung mga amount na taxable in the future kaya ang ginagawa natin diyan is dideduct
which in the end give rise to deferred tax liability, the other kind is the deductible temporary difference
this gives rise to future deductible amount ito rin yung mga amount na deductible in the future kaya
ginagawa natin diya is ina.add which in the end give rise to deferred tax asset.

Slide 7 & 8

Dito is mga example items na maeencounter natin:

1. Depreciation expense, pag-accounting ginagamit natin is straight-line method pag-tax naman is

accelerated method (sum of the years digit method at declining balance method) ang magigng
effect niyan is Malaki ang ang depreciation expense na marerecognize for income tax purposes
kaysa sa nirecord na depreciation ni accounting, so ang sabi ni tax kay accounting is masyado
maliit yung depreciation expense na binawas so dapat magbawas ka pa kaya mag-fafall yan sa
future taxable amount because of the excess tax depreciation. Pero mayroon ding mga problem
nga kahit hindi mag.state ng methods pwede din siyang magfall sa future deductible amount na
dapat idagdag if nakalagay sa problem yung excess accounting depreciation it means sabi ni tax
na masyadong Malaki ang depreciation expense na binawas kaya dapat iadd back yung excess
ng depreciation expense.
2. Bad debt expense, pag-accounting allowance method pag-tax direct write-off method,
remember pag direct write-off method magrerecord lng ng bad debt expense pag-worthless ang
account at walang entry pag-doubtful ang collection, pero pag-allowance method every end of
the period may nirerecognize ka na bad debt expense. So ano ang magiging effect niyan, may
nerecognize na expense ang accounting pero sabi ng tax wala mo nang expense kaya dapat
iaadd back siya which na fall siya under future deductible amount.
3. Prepaid expense which means advance payments, sa accounting accrual basis means yung
expense nirerecognize lamang during the period kung ano man yung naincur, pero kay tax is
cash basis kung lahat ay nabayad mo na then lahat yun ay expense na. kaya ang effect nito is
sabi ni tax lahat ng nabayaran ay expense hindi lng yung na.incur kaya dapat magbawas ka pa
which is under the future taxable amount.
4. Unearned income meaning advance collection naman, sa accounting same pa din accrual basis
na ang income nirerecognize during the period kung magkano ang naearn, sa tax is cash basis
kaya sabi ni tax, kulang yung income narecord dapat irecord lahat ng income since nacollect
naman lahat ng cash kaya mag-aadd ka which falls under future deductible amount.
 5. Warranty expense, in accounting uses estimated repairs pero in tax uses actual repairs, pero
generally mas Malaki ang warranty expense na nirerecognize ni accounting pero sabi ni tax wala
mo nang warranty expense kaya ipapa-add back niya yung amount which will fall under
futuredeductible amount.
6. Litigation loss, in accounting recognizes at estimated settlement loss but according kay tax
magkakaroon lng ng loss in the actual settlement loss, same lng kay warranty expense na mas
Malaki ang marerecognize ni accounting pero sabi tax is wala munang loss na irerecognize kaya
ipapa.add back ni tax which will fall under future deductible amount.
7. Unrealized gain-fvpl, in accounting magkakaroon lng ng gain if may increase in fair value pero
sabi ng tax magkakaroon lng ng gain in the actual sale ng investment, so sabi ni tax kay
accounting is that wala munang gain since wala pang actual sale kay ibawas mo yan which will
fall under future taxable amount.
8. Unrealized loss-fvpl, same lng din in accounting purposes magkakaroon lng ng loss if may
decrease in fair value pero sabi ni tax walang loss hanggat walang actual sale on investment na
naganap, kaya sasabihan ni tax si accounting ni iadd back kasi nga wala pang actual sale na
naganap. This will fall under future deductible amount.
- Note lng na yung unrealized gain or loss under FVOCI is a deferred tax recognized outside
profit or loss meaning hindi po yan machacharge sa income tax expense.
9. Installment sales, in accounting purposes may agad income upon sale however kay tax is
magkaka-income lng upon collection. Kaya sabi ni tax accounting na wla munang income since
wala pang collection kaya ibawas mo yan, that’s why it will fall under future taxable amount.
10. Impairment Loss pertaining to PPE, for accounting purposes pwede magkaroon ng loss pag may
impairment test pero sabi ni tax magkakaroon lng ng loss on actual sale. So, sasabihan ni tax si
accounting na wala munang loss na ibawas since hindi pa naman nabenta yung ppe kaya ipapa-
add back ni tax yung loss which will fall under future deductible amount.
-note if ever makita sa problem impairment loss on goodwill it will fall under permanent
difference classified as nondeductible expense since it does not give rise to deferred tax asset or
liability because they have no future tax consequences.

Slide 9

Deferred tax liability- is the amount of income tax payable in the future period with respect to
temporary differences, it arises from the following:

a. Accounting income is higher than taxable income because of timing differences.- Income
statement approach
b. Carrying Amount of Asset is Higher than the tax base. Balance sheet approach
c. Carrying amount of liability is lower than the tax base. Balance sheet approach

accounting income is greater than tax income. Eventhough Malaki ang narecord ni accounting kaysa kay
tax its not wrong din naman kasi nga yung difference is temporary magkakatugma din naman cla at the
end is just because of the timing

accounting expense is lower than tax expense. Example dito is yung development cost, generally yung
development cost is expense but then there is a strict criteria regarding recognizing yung development
cost as expense but rather capitalizing it as an asset. But in taxation it is consider as an expense that’s
why mas Malaki ngayon ang expense na narecord ni taxation kaysa kay accounting, if Malaki ang
expense na narecord ni tax it means bababa yung income and sa side naman ni accounting since maliit
lng yung narecord niya na expense then Malaki yung income niya which result to deferred tax liability
kasi nga accounting income is higher than tax income.

a. Carrying Amount of Asset is Higher than the tax base.

- Yung carrying amount dba is yung recorded value ng asset, yung tax base nman is actually is
the same on the carrying amount only that, it is a carrying amount from the point of view ni
taxation.
b. Carrying amount of liability is lower than the tax base.

Slide 10

Other taxable temporary differences this does not affects yung nominal accounts but rather yung mga
real accounts lng.

1. If there is a revaluation upward it will result yung carrying amount of the asset is tumaas
however since sa tax wala naman clang pakialam dun, then this will result deferred tax liability
kasi nga carrying amount of the asset is greater than tax base.
2. Dito is if ever daw hindi dinistribute lahat yung entire income sa parent or investor. Like for
example sa investment ins associate dba we use doon is yung equity model. If magkaroon ng
income yung entity dba we debit investment in associate and credit investment income. Then
later on pag-nagdistribute dba we debit cash and credit investment in associate the problem is
hndi nadistribute lahat, so may balance pa tayo pero sa point of view ni taxation walang ang
tinitingnan niya lang is ung cash na nareceive at ang assumption niya always is same-same lng
kaya ang ending mas mataas ang carrying amount ni asset dahil nga may balance pa diba tayo
doon kaysa sa tax base which will fall under deferred tax liability.

Slide 11

- ALL TAXABLE TEMPORARY DIFFERENCE

NOT RECOGNIZED when the taxable temporary difference arises from:

- Goodwill- prohibits a deferred tax liability for goodwill on initial recognition dahil yung goodwill is the
residual amount after recognizing assets at yung liabilities. If irecognize kasi natin siya under deferred tax
liability it would simply increase the value of goodwill.

- Initial Recognition of an asset or liability in a transaction that is not a business combination and affects
neither AI nor TI.- deferred tax liability is not recognized on the initial recognition of an asset which is
not fully deductible for tax purposes.

- Undistributed Profit of subsidiary, associate or joint venture when:- Pas 12 prohibits the recognition of
a deferred tax liability for such taxable temporary difference when the following conditions are present:

 The parent, investor, or venturer is ABLE TO CONTROL the timing of the reversal of the
temporary difference.- this means that the parent can control the dividend policy of the
subsidiary.
  It is probable that the temporary difference will not reverse in the foreseeable future.

Slide 12

Deferred tax asset- it is a deferred tax consequence attributable to a future deductible amount and
operating loss carryforward. It arises from

 When the taxable income is higher than accounting income because of the timing
differences.
 When the tax base of asset is higher than the carrying amount.
 When the tax base of a liability is lower than the carrying amount.

- I will not discuss further na dito sa criteria since opposite lng naan siya kanina sa
deferred tax liability.

Slide 13

Also this other deductible temporary difference under deferred asset yung first if revalued
downward opposite kanina sa deferred tax liability, if revalued downward will result for the
caarying amount of the asset to reduce which result to carrying amount of the asset to become
lower than tax base.

Yung second is if sa deferred txa liability is yung income has not entirely distributed dito naman
sa deferred tax asset is suffering from continuing losses in current and prior years. Dba sa
investment in associate pagnagkaroon ng loss is dinidebit natin is investment loss credit
investment in associate, however if patuloy pa rin ang loss na nangyari in accounting dba hindi
na tayo nag-i-entry yung we just made the inv. Assoc as 0, pero sa point of view ni tax yung loss
natin is tuloy-tuloy yun kaya mag-nenegative. So sa accounting 0 yung reported sa tax is
negative. In this illustration sino mas Malaki in terms of liability dba yung 0 which is si
accounting. Thus this will give rise to deferred tax asset.

Slide 14

Yung recognition ng deferred tax asset is all deductible temporary difference and operating loss
carryforward.

Slide 15

These are the accounting formula and procedure, yung recognition ng deferred tax asset or
liability is known as interperiod tax allocation.

Slide 16-23

Illustrations

Slide 24
 In the presentation of the deferred tax asset at deferred tax liability, it shall be noted na
hindi mo siy pwedeng i.classify as current kapag ang gingawa mo sa balance sheet mo ay ina-
identify mo kung current and noncurrent yung mga elements. It means na if nag-iidentify ka ng
current at ng noncurrent si DTL at DTA ay laging noncurrent.

Slide 25

Another thing is that hindi pwedeng i-offset si DTA at DTL unless nireqire or permitted
by another standard which is yung PAS 12. So dito sabi nistandard sge papayagan kita na i-offset
yung DTA at DTL mo if yung DTA at DTL na related to income ay iisang tax authority lamang
ang nagproprovide. Or if yung entity has a legal enforceable right to set off yung current tax
asset against current tax liability. In simple words, kapag daw mayroon kang current tax asset at
current tax liabilities tpos ini-offset mo yung dalawang yung and has legal enforceable right
pwede mor in daw yung gawin sa deferred tax asset at deferred tax liabilities.

Slide 26

Current taxes- it measure using the tax rate that has been enacted and effective at the end of the
reporting period.

Deferred taxes- it is measured using the tax rate that has been enacted by the end of reporting
period and expected to apply to the period when the asset is realized or the liability is settled.

Slide 39