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    ACT150 Assignment DIMAAMPAO

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    Jerome
    The document contains three accounting problems involving the calculation of deferred tax assets, deferred tax liabilities, and tax expenses given information about temporary differences between financial and tax reporting. Temporary differences include items like depreciation methods, inventory provisions, asset revaluations, and impairment losses. The solutions show the calculations to determine the appropriate deferred tax account balances and tax expenses.

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    ACT150 Assignment DIMAAMPAO

    Uploaded by

    Jerome
    330 views4 pages
    The document contains three accounting problems involving the calculation of deferred tax assets, deferred tax liabilities, and tax expenses given information about temporary differences between financial and tax reporting. Temporary differences include items like depreciation methods, inventory provisions, asset revaluations, and impairment losses. The solutions show the calculations to determine the appropriate deferred tax account balances and tax expenses.

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    ACT150-Assignment-DIMAAMPAO

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    The document contains three accounting problems involving the calculation of deferred tax assets, deferred tax liabilities, and tax expenses given information about temporary differences between financial and tax reporting. Temporary differences include items like depreciation methods, inventory provisions, asset revaluations, and impairment losses. The solutions show the calculations to determine the appropriate deferred tax account balances and tax expenses.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    330 views4 pages

    ACT150 Assignment DIMAAMPAO

    Uploaded by

    Jerome
    The document contains three accounting problems involving the calculation of deferred tax assets, deferred tax liabilities, and tax expenses given information about temporary differences between financial and tax reporting. Temporary differences include items like depreciation methods, inventory provisions, asset revaluations, and impairment losses. The solutions show the calculations to determine the appropriate deferred tax account balances and tax expenses.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 4

    ACT150

    ASSIGNMENT

    Name: April Rania Dimaampao


    Course & Year: BS Accountancy 4th Year Class Schedule: 1:30 PM to 3:00 PM

    I. Solve the following problems. Write your answers on the space provided after each requirement.

    Problem 1:

    S Company reported taxable income of P8,000,000 in the income tax return for the first year of
    operations.

    The entity revealed the following temporary differences between financial income and taxable income

    Tax depreciation in excess of book depreciation 800,000


    Accrual for product liability claim in excess of actual claim 1,200,000
    Reported installment sales income in excess of taxable installment sales income 2,600,000
    Income tax rate 30%

    1. What amount should be reported as deferred tax asset at year-end? 360,000


    2. What amount should be reported as deferred tax liability at year-end? 1,020,000
    3. What amount should be reported as deferred tax expense? 660,000
    4. What amount should be reported as total tax expense? 3,060,000

    Solution:
    1.) Accrual for product liability claim in excess of actual claim 1,200,000
    30%
    360,000 Deferred Tax Asset

    2.) Tax depreciation in excess of book depreciation 800,000


    Reported installment sales income 2,600,000
    Total future taxable amount 3,400,000

    3,400,000 x 30% = 1,020,000 Deferred Tax Liability

    3.) Increase in Deferred Tax Liability 1,020,000


    Increase in Deferred Tax Asset (360,000)
    Deferred Tax Expense 660,000

    4.) Taxable Income 8,000,000


    Excess tax depreciation 800,000
    Accrual for product liability claim (1,200,000)
    Installment sales income 2,600,000
    Accounting income subject to tax 10,200,000

    10,200,000 x 30% = 3,060,000 Total tax expense


    Problem 2:

    On January 1, 2018, E Company acquired an equipment for P8,000,000. The equipment is depreciated
    using straight line method based on useful life of 8 years with no residual value.

    On January 1, 2021, after 3 years, the equipment was revalued at a replacement cost of P12,000,000
    with no change in the useful life.

    The pretax accounting income before depreciation for 2021 is P10,000,000. The income tax rate is 30%
    and there are no other temporary differences at the beginning of the year.

    1. What amount should be reported as deferred tax liability on January 1, 2021 arising from the
    revaluation? 750,000
    2. What amount should be reported as current tax expense for the current year? 2,700,000
    3. What amount should be reported as deferred tax liability on December 31, 2021 arising from
    the revaluation? 600,000
    4. What amount should be reported as total tax expense for the current year? 2,550,000
    5. What amount should be reported as revaluation surplus on December 31, 2021? 1,400,000

    Solution
    1.)

    Cost Replacement cost Appreciation


    Equipment 8,000,000 12,000,000 4,000,000
    Accumulated depreciation
    (8,000,000 x 3/8) 3,000,000
    (12,000,000 x 3/8) 4,500,000 1,500,000
    CA/SV/RS 5,000,000 7,500,000 2,500,000

    Equipment 4,000,000
    Accumulated depreciation 1,500,000
    Revaluation surplus 2,500,000

    Revaluation surplus 750,000


    Deferred Tax Liability (2,500,000 x 30%) 750,000

    2.) Pretax accounting income before depreciation 10,000,000


    Depreciation on cost (5,000,000/5) (1,000,000)
    Taxable income 9,000,000

    3.) Equipment at replacement cost 12,000,000


    Accumulate depreciation:
    January 1, 2021 4,500,000
    Depreciation on revalued amount for 2021
    (7,500,000/5) 1,500,000 6,000,000
    Carrying amount – December 31, 2021 6,000,000
    Equipment at cost 8,000,000
    Accumulated depreciation:
    January 1, 2021 3,000,000
    Depreciation on cost for 2021 1,000,000 4,000,000
    Tax base – December 31, 2021 4,000,000

    Carrying amount – December 31, 2021 6,000,000


    Tax base – December 31, 2021 (4,000,000)
    Taxable temporary difference 2,000,000

    2,000,000 x 30% = 600,000 Deferred tax liability – December 31, 2021

    Deferred Tax Liability – Dec 2021 600,000


    Deferred Tax Liability – Jan 2021 750,000
    Decrease in deferred tax liability (150,000)

    Deferred tax liability 150,000


    Income tax expense 150,000

    4.) Current tax expense 2,700,000


    Decrease in deferred tax liability (150,000)
    Total tax expense 2,550,000

    5.) Revaluation surplus – January 1, 2021 2,500,000


    Deferred tax liability (750,000)
    Adjusted balance – January 1, 2021 1,750,000
    Realization in 2021 (1,750,000/5) (350,000)
    Revaluation surplus – December 31, 2021 1,400,000

    Revaluation surplus 350,000


    Retained earnings 350,000

    Problem 3

    W Company reported the following assets and liabilities at year-end:

    Carrying Amount Tax base


    Land 10,000,000 7,000,000
    Machinery and equipment 5,000,000 4,000,000
    Inventory 2,500,000 4,000,000
    Accounts receivable 2,000,000 3,000,000
    Liabilities 6,000,000 5,500,000

    The entity had made a provision of inventory obsolescence of P1,500,000. Further, an impairment loss
    against accounts receivable of P1,000,000 has been made. The tax rate is 30%.
    1. Deferred tax liability? 1,200,000
    2. Deferred tax asset? 900,000
    3. Deferred tax expense? 300,000

    Solution
    1.) Land:
    Carrying amount 10,000,000
    Tax base 7,000,000 3,000,000
    Machinery and equipment:
    Carrying amount 5,000,000
    Tax base 4,000,000 1,000,000
    Future taxable amount 4,000,000

    4,000,000 x 30% = 1,200,000 Deferred tax liability

    2.) Inventory:
    Tax base 4,000,000
    Carrying amount 2,500,000 1,500,000
    Accounts receivable:
    Tax base 3,000,000
    Carrying amount 2,000,000 1,000,000
    Liabilities:
    Carrying amount 6,000,000
    Tax base 5,500,000 500,000
    Future deductible amount 3,000,000

    3,000,000 x 30% = 900,000 Deferred tax asset

    3.) Increase in deferred tax liability – tax expense 1,200,000


    Increase in deferred tax asset – tax benefit (900,000)
    Net deferred tax expense 300,000

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