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PAS 12: INCOME TAXES

ACCOUNTING INCOME TAXABLE INCOME


Revenue P xx Gross Income P xx
Less: Expenses xx Less: Deductions xx
Net Income P xx Net Income P xx

Note: Note:
 Revenue is recognized when earned  In taxable income it is based on
 Expenses is recognized when the actual cash flows
incurred  These are ITR, 30% tax rate, Normal
 This means that accounting income Income Tax, RCIT
are under ACCRUAL Method.

DIFFERENCES OF ACCOUNTING AND TAXABLE INCOME


PERMANENT DIFFERENCES TEMPORARY DIFFERENCES
 These are differences that will not  Expense or Income is recognized by
reconcile to both accounting and both, but at different amount d/t
taxable income. timing, because the accounting
 Expense or Income is recognized uses accrual method, while
either of the two (accounting or taxation is cash basis.
taxable). Like if it’s an income
in accounting, it will never be an Causes of Temporary Difference (A-D-E)
income in taxation. 1. Accrual
2. Deferral (Unearned Income &
4 Common Permanent Difference (D-I-L-F) Prepaid Asset)
1. Dividend income from domestic 3. Estimation
company (non-taxable)
2. Interest income from deposit. It
is subject to 20% final withholding
tax (non-taxable)
Interest income from tax exempt
investment (non-taxable)
3. Life insurance expense on the life
of the officer where the
beneficiary is the Corporation
(non-deductible)
4. Fines, penalties, surcharges (non-
deductible)

NOT DIFFERENCE (NOTHING TO RECONCILE)


1. Dividend income if from foreign corporation, it’s an income of both
2. Interest income from note receivable (part of gross income)
3. Life insurance expensed, beneficiary is an officer (deductible)
PROFORMA
Accounting Income Before Income Tax P xx

Add(Deduct): Permanent Differences


1. Dividend income from domestic company (non-taxable) (xx)
2. Interest income from deposit (non-taxable) (xx)
3. Interest income from tax exempt investment (non-taxable) (xx)
4. Life insurance expense on the life of the officer where the
beneficiary is the Corporation (non-deductible) xx
5. Fines, penalties, surcharges (non-deductible) xx
Accounting Income After Permanent Temporary Difference P xx

Add (Deduct): Temporary Difference (A-D-E)


1. Accrual xx
2. Deferral xx/(xx)
3. Estimates xx
Taxable Income P xx
Note:
 For accrual, get the difference of the Total Expense and the Total Expense Paid. The computed difference will be
added back because in taxation this is not a deduction because there is no money involve.
 For Unearned Income, get the difference of the Income Receive and the income recognize. If the Income receive
is greater than the income recognized, the differences is added back because it is already received and should be
part of taxable income.
 For Estimates like Bad Debt Expense (BDE) and Depreciation, they are non-deduction because they do not involve
cash, therefore they are added back.
 For Prepaid Assets, get the difference of Assets purchased and the asset used. The difference will be deducted
because they are non-taxable.

Accounting Income = All Income – All Expenses


Current Income Tax Expense = Taxable Income x Tax Rate
Net Income = Accounting Income – Income Tax Expense
Income Tax Expense = Accounting Income After Permanent Temporary Difference x Tax Rate
Or Current Income Tax Expense + Deferred Tax Expense
Deferred Tax Expense = DTL – DTA
Total Tax Liabilities = Current Income Tax Expense + DTL

Deferred Tax Expense Sources is the A-D-E


Deductible Temporary Difference, beginning = A, beginning + D. beginning + E. Beginning
Deferred Tax Asset, beginning = Deductible Temporary Difference, beginning X Tax Rate

Deductible Temporary Difference, end = A, end + D. end + E. end


Deferred Tax Asset, beginning = Deductible Temporary Difference, end X Tax Rate

Deferred Tax Asset = Deferred Tax Asset, beginning - Deferred Tax Asset, beginning
Or
= Computed ADE in Proforma x Tax Rate
Entry:
DTA P xx
Income Tax Benefit/Expense P xx

Taxable Temporary Differences, beginning = Prepaid Assets, beginning


Deferred Tax Liability, beginning = Taxable Temporary Differences, beginning X Tax Rate

Taxable Temporary Differences, end = Prepaid Assets, end +


Deferred Tax Liability, end = Taxable Temporary Differences, end X Tax Rate
Or
= (Prepaid asset + Estimates) x Tax Rate
Entry;
Income tax Expense P xx
DTL P xx

CITE + Deferred tax


Expense
Taxable Income(loss) Computed in Proforma
Income Tax Expense Or
(ITE)
AIFPTD x Tax Rate
Current Income Tax Taxable Income x Tax Total Tax Liabilities ITE + DTL
Expense (CITE) Rate
Deferred Tax Expense DTL - DTA Net Income AI - ETI

Deductible Temporary A, beginning + D. beginning DTA, beginning DTD, beginning x Tax


Difference, beginning rate
+ E. Beginning
Deductible Temporary A, end + D. end + E. end DTA, end DTD, end x Tax rate
Difference, end
Taxable Temporary Prepaid Assets, beginning DTL, beginning TTD, beginning x Tax
Difference, beginning Rate
Taxable Temporary Prepaid Assets, end… DTL, end TTD, end x Tax Rate
Difference, beginning