$ 6

2 9 1 5
4 7 £ 9
¥ 0
1 1

PAS 12:
3 8
4
$
6

INCOME 8

9
0

3
2
TAXES 2

5
7 ¥
€ 4
€
5 £ 8 5
 6 $
£

Objectives: 5 1
9 0
1

8 3
To distinguish permanent differences and temporary4
differences between accounting income and taxable
income. 2

To identify temporary differences that results to a 5

€
deferred tax liability. ¥

To identify temporary differences that results to a 7

deferred tax assets 4
8
To know the recognition and measurement of
deferred tax asset and deferred tax liability.
 6 $
£

5 1
9 0
1

8 3

DEFERRED TAX
4

€ 5
¥

7
4
8
 6 $
£

5 1
9 0
1
DEFERRED 8 3

TAX NON
4

PUBLI 2
PUBLI
C
Is an accounting that is C
€ 5
applicable to ALL ¥
entities,
whether…. 7
4
8
 6 $
£

it
deb
and i
5 n a 1
ity raded -the-
ent 9
o s e a re t r over 0
Wh rities o 1
a. u a nge
c h
se
k exc rket.
PUBLI c
sto ter ma
n 8 3
cou
C 4

ENTIT 2
b. W
Y are hose e
r 5
Exc egiste quity o €
¥
h r r
for ange ed wit debt
t he C h s
sec ommi Secur ecuriti 7
urit s e
ies. sion in ities an s
pre4 d
par
atio 8
n
 6 $
£
*PERMANE
NT
1 DIFFERENC
NONTAXABLE5
I ACCOUNTIN PERMANE REVENUE (NTR)
ES DO NOT
9
G INCOME/ GIVE RISE0
NT
N FINANCIAL
DIFFEREN
1 TO
DEFERRED
INCOME NONDEDUCTIBL
C “FI” CES E REVENUE TAX ASSET
8
AND
3
(NDR)
O 4 LIABILITIES

M 2 *TEMPORAR

E TAXABLE
Y
5 DIFFERENC
TEMPORA TEMPORARY€ ES GIVE ¥
T TAXABLE
RY
DIFFERENCE RISE
INCOME (TTD) EITHER TO
A “TI” DIFFEREN DEDUCTIBLE A
7
TAXABLE 4 DEFERRED
X CES DIFFERENCE TAX ASSET 8
E (DTD) AND
LIABILITIES
S
 6 $
£

5 1
ACCOUNTING INCOME OR
FINANCIAL INCOME 9 0
1

8 3
4
Is the Net Income for the period
BEFORE deducting income tax 2

expense. € 5
¥
This is the income appearing on the
7
traditional income statement and 4
computed in accordance with 8

accounting standard.
 6 $
£

5 1
TAXABLE INCOME 9 0
1

8 3
 Is the income for the period determined in accordance with the
4
rules established by the taxation authorities upon which income
2
taxes are payable or recoverable.

Example: Taxes by government € 5

¥
LE INCOME is the income appearing on the income tax return and computed
cordance with the income tax law. 7
4
so the excess of taxable revenue over tax deductible expense and exemptions 8
he period as defined by the Bureau of Internal Revenue.
 DIFFERENCES
BETWEEN
ACCOUNTING
INCOME AND
TAXABLE INCOME
ARISE. SUCH
DIFFERENCES MAY PERMANENT
BE CLASSIFIED DIFFERENCES
INTO TWO,
NAMELY:

TEMPORARY
DIFFERENCES
 6 $
£

PERMANENT
DIFFERENCES 5 1
9 0
1 income
of revenue and expense which are included in EITHER accounting
xable income but will NEVER be included in the other.
8 3
4
N TO NONTAXABLE REVENUE AND NONDEDUCTIBLE EXPENSES
2
OT GIVE RISE TO DEFERRED TAX ASSET AND LIABLITY BECAUSE
HAVE NO FUTURE TAX CONSEQUENCES. 5
. *When the entity is €
the
¥
beneficiary of a life insurance
EXAMPLES: policy on an officer or employee,
7
the premium paid by the entity is
a. Interest Income on deposits not deductible as expense for tax4
b. Dividends received purposes but said premium is an 8
c. Life insurance premium expense for financial reporting
purposes.
d. Tax penalties, surcharges and fines
 6 $
£

TEMPORARY 1
5
DIFFERENCES 9 0
1

 Items of income and expenses which are included8 3

4
in BOTH accounting income and taxable income
BUT at different time and periods. 2

€ 5
E RISE EITHER TO A DEFERRED TAX LIABILITY OR ¥

FERRED TAX ASSET. 7

4
8
 6 $
£

5 1
TEMPORARY 9 0
DIFFERENCES • Is the result in FUTURE
1
TAXABLE
AMOUNT in determining 8taxable3
income of future periods.
4
TAXABLE TEMPORARY
2
DIFFERENCES •Shall be recognized for all TAXABLE
TEMPORARY DIFFERENCES
• The amount of€ income 5 tax PAYABLE¥
in future periods with respect to a
TAXABLE TEMPORARY DIFFERENCES
7
DEFERRED TAX LIABILTY • Arises when accounting income is
4
higher than taxable income because
8
of future taxable amount.
 6 $
£
•ACCOUNTING INCOME HIGHER THAN TAXABLE
INCOME•
5 1
1. Revenues and gains are included in accounting income of the9 0
current period but are taxable in future periods. 1

Example: 8 3
An installment sale is included in accounting income at the 4time of
sale and include in taxable income when cash is collected in future
periods. 2

2. Expenses and losses are deductible for tax purposes in the 5

€
current period but deductible for accounting purposes in future ¥
periods.
7
a. Accelerated depreciation for tax purposes and straight
4 line
depreciation for accounting purposes. 8
b. Prepaid expenses has already been deducted on a cash basis in
determining taxable income of the current period.
 6 $
£

5 1
TEMPORARY 9 0
DIFFERENCES 1
• Shall be recognized for
all
deductible temporary 8 3
differences and operating 4
loss carryforward when it DEDUCTIBLE
is probable that taxable • Arises
2 when
income will be available
TAXABLE
against which deferred DIFFERENCE taxable income is
asset can be used.
• Deferred tax (DTD) higher
€ 5
¥
consequences than accounting
attributable to a future income because 7
deductible amount and of future
operating loss 4
carryforward DEFERRED TAX Deductible 8
ASSET amount.
 6 $
£
•TAXABLE INCOME HIGHER THAN ACCOUNTING
INCOME•
5 1
9 0
1. Revenues and gains are included in taxable income of the1current
period but are included in accounting income of future period.
8 3
Example:
4
Rent Received in advance is taxable at the time of receipt but
deferred in future periods for accounting purposes.
2
2. Expenses and losses are deductible from accounting income of
current period but are € 5
¥
deductible for tax purposes in future periods.
Example: 7
Doubtful accounts are deducted from accounting income4 but are
deductible for 8
Tax purposes when proved worthless in future periods.
 CURRENT TAX CURRENT TAX
LIABILITY ASSET
 The EXCESS of the
 Current tax
amount of tax that
expense or the
is already paid for
amount of income the current period
tax ACTUALLY exceeds the amount
payable. actually payable for
the period.

A current tax liability or current tax asset shall be

measured using the tax rate that has been enacted
and effective at the end of the reporting period.
 Presented as
NONCURRENT
M ASSET
E DEFERRED
A TAX ASSET
•Shall be measured using the
S tax rate that has been
U enacted by the end of the
reporting period and
R expected to apply to the
period when the asset is
E realized or the liability is
settled.
M DEFERRE
E D TAX •Shall not be discounted.
LIABILITY
N Presented as
NONCURREN
T T
LIABILITY