INCOME TAXES OBJECTIVE AND SCOPE PAS 12 is applied by all entities in accounting for income taxes.

It prescribes how to account for the current and future tax consequences of temporary differences arising from taxable temporary differences (TTD) and deductible temporary differences(DTD) PAS 12 2nd paragraph states that income taxes include all domestic and foreign taxes which are based on taxable profits. Income taxes also include taxes, such as withholding taxes, which are payable by a subsidiary, associate or joint venture on distributions to the reporting entity. ACCOUNTING PROFIT VS TAXABLE PROFIT Accounting profit/ pretax income /financial income/ accounting income = profit or loss for a period before deducting income tax expense = total income less total expenses before income tax expense Taxable profit / taxable income = profit or loss for a period determined in accordance with relevant tax laws and rules established by the taxation authorities upon which income tax payable is computed = total taxable income less total tax deductible expenses and other tax deductible items Note: PFRS PHILIPPINE TAX LAWS Income and expenses are recognized for financial Income and expenses are recognized for taxation reporting purposes when they qualify for recognition purposes when they qualify for recognition as taxable under PFRS and conceptual framework income or tax deductable expenses under PTL The varying treatments may create permanent or temporary differences PERMANENT DIFFERENCES = Arises when income and expenses enter in the computation of either accounting income or taxable income but not both. = usually arise s form non-taxable and non-deductible expenses and those that have already been subjected to final taxes or simply these are items excluded from the income tax return = does not result in deferred taxes because no future tax consequences are created = neither taxable nor tax deductible = have already been taxed under final taxation TEMPORARY DIFFERENCES = Differences between the carrying amount of an asset or liability in the statement of financial position and its *tax base = Occur when an item appears on financial statements in one year and on the tax return in a different year.

= = 2 TYPES

Include *timing differences Give rise to *deferred tax liabilities(DTL) or *deferred tax assets(DTA)

Taxable temporary differences (TTD)

Temporary difference that will yield future taxable amounts in the future when determining taxable profit or loss when carrying amount of the asset or liability is recovered or settled.

Deductible temporary differences (DTD)

Temporary difference that will yield amounts that can be deducted in the future when determining taxable profit or loss when carrying amount of the asset
or liability is recovered or settled.

Give rise to deferred tax liabilities Financial income greater than the taxable income (FI>TI) Carrying amount of an asset is greater than its tax base (CA>TB) Carrying amount of an liability is less than its tax base (CA<TB)

Give rise to deferred assets Financial income less than the taxable income (FI<TI) Carrying amount of an asset is less than its tax base (CA<TB) Carrying amount of an liability is greater than its tax base (CA>TB)

*Tax base the amount attributed to that asset or liability for tax purposes *Tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset if the economic benefits from the asset do not have future tax consequence, the tax base of the asset is equal to its carrying amount *Tax base of a liability is its carrying amount less any amount that will be deductible for tax purposes in respect of that liability in future periods in case of revenue which is received in advance, the tax base of the resulting liability is its carrying amount, less any amount of the revenue that will not be taxable in future periods. *Timing differences arises when income and expenses are recognized for financial accounting purposes in one period but are only recognized for taxation purposes in another period or vice versa. Those differences between taxable income andaccounting income for a period that originates in one period and are capable of reversal in one or more subsequent periods. *deferred tax Liabilities Amounts of income taxes payable in future periods in respect of taxable temporary differences. *deferred tax assets Amounts of income taxes recoverable in future periods

 Tax expense(tax income)/ income tax expense Is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax. a. Current tax/ current tax expense Is the amount of income taxes payable(recoverable) in respect of the taxable profit(tax loss) for a period. This amount is presented in the income tax return filed with the BIR b. Deferred tax expense(benefit) Represents the net changes in deferred tax liability and deferred tax asset during the period Deferred tax expense Deferred tax benefit Is the result when increase in deferred tax Is the result when increase in deferred tax liability exceeds the increase in deferred liability is less than the increase in tax asset deferred tax asset