Taxation

transaction
ACCOUNTING FOR INCOME  Accounting income is HIGHER than Taxable Income due
TAXES to timing difference
Defer r ed Tax Accou nting – applicable to ALL entities, public or o Revenues include in accounting income but taxable
not. in future
Pu blic Entity: e.g.: Installments
 Equity and debt securities are traded in stock o Expenses and losses are deductible for tax purpose
exchange or over-the-counter but deductible for accounting purpose in future
 Equity and debt securities are registered with SEC E.g.: DepreciationDevelopment cost Prepaid Expense
in preparation for sale  Carrying amount of asset HIGHER than tax base
Accou nting Incom e  Carrying amount of liability LOW ER than tax base
 Net income for period before deducting income tax expense  asset is revalued upward and no equivalent adjustment
 Income appearing on traditional income statement made
 Computed accordance with accounting standard  carrying amount of investment in subsidiary, associate or
Taxable incom e joint venture is HIGHER than tax base because not
 Income of period determined in accordance with taxation rules distributed income
upon which income are payable  cost of business combination accounted as acquisition is
 Excess of taxable revenue over tax deductible expense and allocated to identifiable assets and liabilities at fair value
exemption Not Recognize w hen ar ise fr om :
 Income appear in income tax return  Goodwill (NON-Deductible)
 Computed accordance with income tax law  Initial recognition of asset or liability that is not Business
Diff er ence betw een Accou nting incom e & Taxable Incom e combination
a. Permanent Difference  Undistributed profit of subsidiary, associate joint venture
 Revenue and expenses included in either accounting or taxable able to control timing
income but NEVER be included in other Defer r ed Tax Asset (+)
o Non-taxable r evenu e  Amount of tax recoverable in future periods with respect to
- Passive income subject to Final Tax, Capital gains deductible temporary difference and operating loss carry
Tax forward
o Non-dedu ctible expenses  Recognize all deductible temporary differences and operating
- Penalties loss carry forward when probable that taxable income will be
- Surcharges available
- Fines Excess of tax deductions over gross income that
b. Temporary difference may carried forward to reduce taxable income
(NOLCO)
 Difference between carrying amount of asset or liability and tax
Ar ises fr om :
base
 Taxable income HIGHER than Accounting income
o Taxable Tem por ar y diff er ence
o Revenues included in taxable income of current period
- Result future taxable amount in determining
but included in accounting income in future
taxable income of future period
E.g: rent received in advance
o Dedu ctible tem por ar y diff er ence
o Expenses and losses deducted from accounting of
- Result future deductible amount in determining
current period but deductible for tax purpose in future
taxable income of future period
 Tax base of asset HIGHER than carrying amount
Tim ing diff er ence
 Tax base of liability LOW ER than carrying amount
- Difference between accounting income and taxable income
 Revalued downward and no equivalent adjustment made
that originate in one period and reverse in other periods
 Tax base of investment in subsidiary, associate or joint venture
- Include income and expense in both accounting and taxable
is HIGHER than carrying amount because suffered continuing
income
losses sin current and prior year
Tax B ase
Fu tu r e dedu ctible Tem por ar y Diff er ences
- Amount attributable to asset or liability for tax purposes
 Probable and measurable litigation
- Amount recognized or allowed for tax purposes
 Estimated warranty cost
Tax B ase of Asset
 Research cost
- will be deductible for tax purposes
 Impairment loss
Tax B ase of Liability
 Doubtful accounts
- the carrying amount less amount will be deductible for tax
Method of Accou nting
purposes
a. Income statement Approach
Defer r ed Tax Liability (-)
 income tax payable in future with respect to taxable temporary  Focuses on timing differences only
difference  Affect income statement of one period and will reverse in
 recognize ALL taxable temporary difference income statement of more periods
Ar ise fr om : b. Statement of financial Position

- Because of differences in timing of recognition of  All temporary differences