INCOME TAXES
Objective of PAS 12
The objective of PAS 12 is to prescribe the accounting treatment for income taxes. The principal
issue in accounting for income taxes is how to account for the current and future tax
consequences of:
a. The future recovery or settlement of the carrying amount of assets or liabilities that are
recognized in an entity’s statement of financial position; and
,b. Transactions and other events of the current period that are recognized in an entity’s financial
statements.
Any differences that could possibly arise from varying treatments of PFRS and Philippine tax
laws for assets, liabilities, income and expenses shall be properly accounted for and disclosed.
Accounting Income vs Taxable Income
Accounting Income/Financial Income Taxable Income
Net income for the period before deducting Excess of taxable revenue over tax deductible
income tax expense expense and exemptions for the period
Income appearing on the traditional income Income appearing on the income tax return and
statement and computed in accordance with computed in accordance with the income tax
accounting standards or determined using law or as prescribed by the Bureau of
PFRS Internal Revenue
The differences between accounting income and taxable income may be classified into
permanent differences and temporary differences.
Permanent Differences vs Temporary Differences
Permanent Differences Temporary Differences
Items of revenue and expense which are Include timing differences (items of income
included in either accounting income or and expenses which are included in both
taxable income but will never be included accounting income and taxable income but
in at
the other different time periods)
Pertain to nontaxable revenue and Differences between the carrying amount of
nondeductible expenses an asset or liability and its tax base
Carrying amount pertains to the amount
presented on the statement of financial position
while Tax base is the amount
attributable for tax purposes.
Do not give rise to deferred tax asset and Give rise either to deferred tax liability
liability because they have no future tax (DTL) or deferred tax asset (DTA) and
consequences have future
tax consequences
Nontaxable revenue: Income already Taxable temporary differences result in
subjected to final tax (interest income on time future taxable amount in determining taxable
or savings deposits; interest revenue from income of future periods when the carrying
government bonds, treasury bills, or municipal amount of
, bonds; gains subject to capital gains tax), and (for DTL)
Income exempted from income taxation
(intercompany dividends received from a
domestic corporation; and proceeds from life
insurance where the company is the
beneficiary)
Nondeductible expenses: Fines, penalties Deductible temporary differences result in
and/or surcharges for violation of laws; future deductible amount in determining
Premiums paid on life insurance for officers taxable income of future periods when the
and employees (where the company is the carrying amount of the asset or liability is
beneficiary); Loss on expropriation of recovered or settled. (for DTA)
property; Impairment loss on goodwill (if the
problem is silent); Charitable contributions in
excess of tax liabilities
Deferred Tax Liability vs Deferred Tax Asset
Deferred Tax Liability Deferred Tax Asset
The amount of income tax payable in future The amount of income tax recoverable in
periods with respect to taxable temporary future periods with respect to deductible
differences temporary differences and operating loss
carryforward (carryforward of unused tax
losses), and carryforward of unused tax
credits.
Operating loss carryforward is an excess of
tax deductions over gross income in a year that
may be carried forward to reduce taxable
income in a future year
DTL = Taxable temporary differences * DTA = Deductible temporary differences
*
Future enacted tax rate
Future enacted tax rate
It arises when: (DTL: AICA higher, CL lower) It arises when: (DTA: AICA lower, CL higher)
a. When the accounting income is higher a. When the accounting income is lower
than taxable income because of timing than taxable income because of timing
differences (AI > TI) differences (AI < TI)
b. When the carrying amount of an asset b. When the carrying amount of an asset
is higher than the tax base (CA > TB) is lower than the tax base (CA < TB)
Objective of PAS 12
The objective of PAS 12 is to prescribe the accounting treatment for income taxes. The principal
issue in accounting for income taxes is how to account for the current and future tax
consequences of:
a. The future recovery or settlement of the carrying amount of assets or liabilities that are
recognized in an entity’s statement of financial position; and
,b. Transactions and other events of the current period that are recognized in an entity’s financial
statements.
Any differences that could possibly arise from varying treatments of PFRS and Philippine tax
laws for assets, liabilities, income and expenses shall be properly accounted for and disclosed.
Accounting Income vs Taxable Income
Accounting Income/Financial Income Taxable Income
Net income for the period before deducting Excess of taxable revenue over tax deductible
income tax expense expense and exemptions for the period
Income appearing on the traditional income Income appearing on the income tax return and
statement and computed in accordance with computed in accordance with the income tax
accounting standards or determined using law or as prescribed by the Bureau of
PFRS Internal Revenue
The differences between accounting income and taxable income may be classified into
permanent differences and temporary differences.
Permanent Differences vs Temporary Differences
Permanent Differences Temporary Differences
Items of revenue and expense which are Include timing differences (items of income
included in either accounting income or and expenses which are included in both
taxable income but will never be included accounting income and taxable income but
in at
the other different time periods)
Pertain to nontaxable revenue and Differences between the carrying amount of
nondeductible expenses an asset or liability and its tax base
Carrying amount pertains to the amount
presented on the statement of financial position
while Tax base is the amount
attributable for tax purposes.
Do not give rise to deferred tax asset and Give rise either to deferred tax liability
liability because they have no future tax (DTL) or deferred tax asset (DTA) and
consequences have future
tax consequences
Nontaxable revenue: Income already Taxable temporary differences result in
subjected to final tax (interest income on time future taxable amount in determining taxable
or savings deposits; interest revenue from income of future periods when the carrying
government bonds, treasury bills, or municipal amount of
, bonds; gains subject to capital gains tax), and (for DTL)
Income exempted from income taxation
(intercompany dividends received from a
domestic corporation; and proceeds from life
insurance where the company is the
beneficiary)
Nondeductible expenses: Fines, penalties Deductible temporary differences result in
and/or surcharges for violation of laws; future deductible amount in determining
Premiums paid on life insurance for officers taxable income of future periods when the
and employees (where the company is the carrying amount of the asset or liability is
beneficiary); Loss on expropriation of recovered or settled. (for DTA)
property; Impairment loss on goodwill (if the
problem is silent); Charitable contributions in
excess of tax liabilities
Deferred Tax Liability vs Deferred Tax Asset
Deferred Tax Liability Deferred Tax Asset
The amount of income tax payable in future The amount of income tax recoverable in
periods with respect to taxable temporary future periods with respect to deductible
differences temporary differences and operating loss
carryforward (carryforward of unused tax
losses), and carryforward of unused tax
credits.
Operating loss carryforward is an excess of
tax deductions over gross income in a year that
may be carried forward to reduce taxable
income in a future year
DTL = Taxable temporary differences * DTA = Deductible temporary differences
*
Future enacted tax rate
Future enacted tax rate
It arises when: (DTL: AICA higher, CL lower) It arises when: (DTA: AICA lower, CL higher)
a. When the accounting income is higher a. When the accounting income is lower
than taxable income because of timing than taxable income because of timing
differences (AI > TI) differences (AI < TI)
b. When the carrying amount of an asset b. When the carrying amount of an asset
is higher than the tax base (CA > TB) is lower than the tax base (CA < TB)
