ACCOUNTING FOR INCOME TAX

Easy:

1. According to PAS 12, current tax for current and prior periods shall, to the
extent unpaid, be recognized as a:

a. Contingent liability
b. Liability
c. Note to the financial statements
d. Expense

2. Differences between the carrying amounts of an entity’s net assets determined

under accounting standards and accrual accounting, and the tax bases of those
net assets determined under the National Internal Revenue Code, are described
as:

a. permanent differences
b. temporary differences
c. the current income tax liability.
d. tax losses

3. CTT Limited has an asset which cost P300 and against which depreciation of
P100 has accumulated. The accumulated depreciation for tax purposes is P180
and the company tax rate is 30%. The tax base of this asset is:

a. 20
b. 220
c. 120
d. 80

4. Deferred tax accounting adjustments are recorded at what point in time?

a. As each transaction arises or is incurred

b. At balance date
c. As the cash flows from each transaction occur
d. At the end of each month

5. To the extent that tax payable exists and has not yet been paid a company will
recognise:

a. non-current liability
b. current tax liability
c. non-current asset
d. current tax asset

6. Under PAS 12 Incomes Taxes, deferred tax assets and liabilities are measured
at the tax rates that:

a. are expected to apply when the asset is realized or the liability is settled.
 b. at the rates that prevail at the reporting date
c. at the end of the reporting period
d. applied at the beginning of the reporting period

7. A deductible temporary difference is expected to lead to the payment of:

a. more tax in the future and gives rise to a deferred tax asset
b. more tax in the future and gives rise to a deferred tax liability
c. less tax in the future and gives rise to a deferred tax asset
d. less tax in the future and gives rise to a deferred tax liability

8. Recognition of tax benefits in the loss year due to a loss carryforward requires

a. the establishment of a deferred tax liability

b. the establishment of a deferred tax asset
c. the establishment of an income tax refund receivable
d. only a note to the financial statements

9. The tax expense related to profit or loss of the period is required to be

presented:

a. on the face of the statement of financial position

b. in the statement of changes in equity
c. in the statement of cash flows
d. on the face of the statement of profit or loss and other comprehensive
income

10.All of the following will give rise to temporary differences, except

a. Proceeds from life insurance

b. Depreciation
c. Doubtful accounts
d. Warranty cost

11.When a change in the tax rate is enacted into law, its effect on existing deferred
income tax accounts should be

a. applied to all temporary or permanent differences that arise prior to the

date of the enactment of the tax rate change, but not subsequent to the date
of the change
b. reported as an adjustment to tax expense in the period of change
c. considered, but it should only be recorded in the accounts if it reduces a
deferred tax liability or increases a deferred tax asset
d. handled retroactively in accordance with the guidance related to changes in
accounting principles

12.Major reasons for disclosure of deferred income tax information is (are)

a. that it may be helpful in setting government policy

b. better predictions of future cash flows
 c. all of these
d. better assessment of quality of earnings

13.Tax losses can be viewed as providing:

a. taxable temporary differences, and therefore a current tax refund

b. taxable temporary differences, and therefore a current tax liability
c. deductible temporary differences, and therefore a deferred tax asset
d. deductible temporary differences, and therefore deferred tax liabilities

14.Current tax consequences of business operations give rise to:

a. a current liability for income tax payable

b. a non-current liability for taxes payable
c. a deferred liability for income tax payable
d. a contingent liability for taxes payable

15.Under Incomes Taxes, deferred tax assets and liabilities are measured at the
tax rates that:

a. applied at the end of the reporting period

b. are expected to apply when the asset is realized or the liability is settled
c. prevail at the reporting date
d. applied at the beginning of the reporting period

16.Generally, when considering the differences between the accounting treatment

and the income tax treatment of a particular item the accounting treatment is
based on:

a. the income tax legislation

b. accrual accounting and is subject to the requirements of accounting
standards
c. cash flows
d. cash flows adjusted for depreciation charges

17.Beta Limited has an accounting profit before tax of P200,000. All of the
following items have been included in the accounting profit: depreciation of
equipment P30,000 (tax deductible depreciation is P20,000); entertainment
expenses P15,000 (non-deductible for tax purposes); Long service leave
expense provided P6,000 (no employee took long service leave during the year).
The tax rate is 30%. The amount of current tax liability is:

a. 69,300
b. 38,700
c. 50,700
d. 81,300

18.A taxable temporary difference is expected to lead to the payment of:

a. more tax in the future and gives rise to a deferred tax asset
 b. more tax in the future and gives rise to a deferred tax liability
c. less tax in the future and gives rise to a deferred tax asset
d. less tax in the future and gives rise to a deferred tax liability

19.All of the following will give rise to deferred tax asset, except

a. Revaluation surplus
b. Accrued expenses
c. Income received in advance
d. Impairment loss

20.Recognizing tax benefit in a loss year due to a loss carryforward requires

a. Creating a deferred tax asset

b. Creating a deferred tax liability
c. Creating a new carryforward for the next year
d. Only a foot disclosure

21.Recognizing a valuation allowance for a deferred tax asset requires that a

company

a. pass a recognition threshold, after assuming that it will be audited by taxing

authorities
b. take an aggressive approach in its tax planning
c. consider only the positive information in determining the need for a
valuation allowance
d. consider all positive and negative information in determining the need for a
valuation allowance

22.Differences between the carrying amounts of an entitys net assets determined

under accounting standards and accrual accounting, and the tax bases of those
net assets determined under the NIRC, are described as:

a. temporary differences
b. the current income tax liability
c. permanent differences
d. tax losses

23.CTV Limited has an asset which cost P400 and against which depreciation of
P200 has accumulated. The accumulated depreciation for tax purposes is P280
and the company tax rate is 30%. The tax base of this asset is:

a. 36
b. 320
c. 120
d. 80

24.Which of the following will not result in a temporary difference?

a. All of these will result in a temporary difference

 b. Product warranty liabilities
c. Installment sales
d. Advance rental receipts

25.The tax effect method of accounting for a companys income tax is based on an
assumption that:

a. an accounting balance sheet and a tax balance sheet are the same
b. income tax expense is equal to income tax payable
c. income tax expense is not equal to current tax liability
d. a tax balance sheet is prepared according to accounting standards

26.Balchin Limited had the following deferred tax balances at reporting date:

Deferred tax assets 12,000

Deferred tax liabilities 30,000

Effective from the first day of the next financial period, the company rate of
income tax was reduced from 40% to 30%. The adjustment to income tax
expense to recognize the impact of the tax rate change is:

a. Debit: P6,000
b. Debit: P4,500
c. Credit: P6,000
d. Credit: P4,500

27.ABC Limited has an asset with a carrying value of P50,000. The tax base of this
asset is P40,000. The tax rate is 30%. As a result, which of the following
deferred tax items does Roland Limited have?

a. A deferred tax asset of P10,000

b. A deferred tax liability of P10,000
c. A deferred tax asset of P3,000
d. A deferred tax liability of P3,000

28.In jurisdictions where the impairment of goodwill is not tax deductible, PAS 12
Income Taxes:

a. requires that any deferred tax items for goodwill be capitalized in the
carrying amount of goodwill
b. does not permit the application of deferred tax accounting to goodwill
c. allows the recognition of a deferred tax item in relation to goodwill
d. requires that any deferred tax items in relation to goodwill be recognized
directly in equity

29.DSilva Limited has a product warranty liability amounting to P10,000. The

product warranty costs are not tax deductible until paid out to customers. The
company tax rate is 30%. The company has:

a. an taxable temporary difference of P10,000

 b. a tax base of P10,000
c. a deductible temporary difference of P10,000
d. a future deductible amount of P0

30.A company uses the equity method to account for an investment. This would
result in what type of difference and in what type of deferred income tax?

a. Type of Difference (Permanent); Deferred Tax (Liability)

b. Type of Difference (Temporary); Deferred Tax (Liability)
c. Type of Difference (Permanent); Deferred Tax (Asset)
d. Type of Difference (Temporary); Deferred Tax (Asset)

31.In computing the change in deferred tax asset or liability, which tax rate is
used?

a. Prior tax rate

b. Current tax rate
c. Estimated future tax rate
d. Enacted future tax rate

32.Which of the following is not considered a permanent difference?

a. Fines resulting from violating the law

b. Stock-based compensation expense
c. Interest received on municipal bonds
d. Premiums paid for life insurance on a company’s CEO when the company is
the beneficiary

33.Uncertain tax positions

I. Are positions for which the tax authorities may disallow a deduction in whole
or in part
II. Include instances in which the tax law is clear and in which the company
believes an audit is likely
III. Give rise to tax expense by increasing payables or increasing a deferred tax
liability

a. I only
b. II only
c. I, II, and III
d. I and III only

34.A company records an unrealized loss on short-term securities. This would

result in what type of difference and in what type of deferred income tax?

a. Type of Difference (Temporary); Deferred Tax (Liability)

b. Type of Difference (Permanent); Deferred Tax (Asset)
c. Type of Difference (Temporary); Deferred Tax (Asset)
d. Type of Difference (Permanent); Deferred Tax (Liability)
35.Jonathan Company was organized on January 1, 2012 and had pretax
accounting income of P5,000,000 and taxable income of P8,000,000 for the year
ended December 31, 2012. The only temporary difference is accrued product
warranty costs that are expected to be paid as follows: 2013 - P1,000,000, 2014
- P500,000, 2015 - P500,000, 2016 - P1,000,000. The entity has never had any
net operating losses and does not expect any in the future. The enacted tax
rates are 35% for 2012, 30% for 2013 to 2015, and 25% for 2016. On December
31, 2012, what amount should be reported as deferred income tax?

a. 850,000 asset
b. 750,000 liability
c. 750,000 asset
d. 850,000 liability

36.Tax rates other than the current tax rate may be used to calculate the deferred
income tax amount on the balance sheet if

a. it is probable that a future tax rate change will occur

b. it appears likely that a future tax rate will be greater than the current tax
rate
c. the future tax rates have been enacted into law
d. it appears likely that a future tax rate will be less than the current tax rate

37.All of the following are procedures for the computation of deferred income
taxes except to

a. identify the types and amounts of existing temporary differences

b. All of these are procedures in computing deferred income taxes
c. measure the total deferred tax liability for taxable temporary differences
d. measure the total deferred tax asset for deductible temporary differences
and operating loss carrybacks

38.On 1 April 2017, the company rate of income tax was changed from 35% to
30%. At the previous reporting date (30 June 2016) Montgomery Limited had
the following tax balances:

Deferred tax assets 26,250

Deferred tax liabilities 21,000

What is the impact of the tax rate change on income tax expense?

a. decrease P875
b. increase P875
c. decrease P750
d. increase P750

39.The recognition of __________ provides more complete or relevant information

for economic decision making than __________.

a. deferred tax alone; current tax and deferred tax combined

 b. current tax alone; current tax and deferred tax combined
c. current tax and deferred tax; deferred tax alone
d. current tax and deferred tax; current tax alone

40.Which of the following temporary differences results in a deferred tax asset in

the year the temporary difference originates?

I. Accrual for product warranty liability

II. Subscriptions received in advance
III. Prepaid insurance expense

a. I and II only
b. II only
c. I and III only
d. III only

Difficult:

41.A company commenced business on 1 July 2016. On 30 June 2017, an extract of

the statement of financial position prepared for internal purposes, but
excluding the effect of income tax, disclosed the following information:

Assets
Cash 40,000
Inventory 100 000
Plant 300,000
Accumulated depreciation (30 000)

Liabilities
Accounts payable 80,000
Long service leave 5,000

Additional information:
 The plant was acquired on 1 July 2016. Depreciation for accounting
purposes was 10% (straight-line method), while 15% (straight-line) was used
for tax purposes.
 The tax rate is 30%.

The deferred tax asset is:

a. 1,500
b. 5,000
c. 4,500
d. 25,500

42.Silver Bullet Limited has a product warranty liability amounting to P12,000.

The product warranty costs are not tax deductible until paid out to customers.
The company tax rate is 30%. The company has a:
 a. tax base of P12 000
b. deductible temporary difference of P12,000
c. taxable temporary difference of P12.000
d. future deductible amount of P0

43.Unless a company has a legal right of set-off, PAS 12 Income Taxes, requires
disclosure of all of the following information for deferred tax statement of
financial position items:

I. The amount of deferred tax assets recognized.

II. The amount of the deferred tax liabilities recognized.
III. The net amount of the deferred tax assets and liabilities recognized.
IV. The amount of the deferred tax asset relating to tax losses.

a. IV only
b. I, II and III only
c. I, II and IV only
d. III and IV only

44.If a taxation authority amends a companys assessment, the company should:

a. Debit income tax expense if more tax needs to be paid

b. Treat the adjustment as a prior period adjustment.
c. Credit income tax expense if less tax needs to be paid
d. Analyze the reason for the adjustment and consider whether both current
and deferred tax are affected

45.The entries for income tax for the period are comprised of three components.
Which of the following is not included in the components?

a. Recognition of the movement in deferred tax liability included in the profit

or loss for the period.
b. Recognition of the current tax liability.
c. Recognition of the movement in deferred tax asset included in the profit or
loss for the period.
d. Recognition of the temporary difference on the purchase of goodwill.

46.Sydney Limited accrued P20,000 for employees long service leave in the year
ended 30 June 2016. This item will not be tax deductible until it is paid in
approximately 10 years time. If the company tax rate is 30%, Sydney Limited
must record which of the following tax effects as a balance date adjustment?

a. Credit: Deferred tax asset P6,000

b. Debit: Deferred tax liability P6,000
c. Debit: Deferred tax asset P6,000
d. Credit: Deferred tax liability P6,000

47.The following information relates to Godfrey Limited for the year ended 30 June
2014.
 Accounting profit before income tax (after all expenses have been 300,000
included)
Fines and penalties (not tax deductible) 20,000
Depreciation of plant (accounting) 40,000
Depreciation of plant (tax) 100,000
Long-service leave expense (not a tax deduction until the leave is 8,000
paid)
Income tax rate 30%

On the basis of this information the current tax liability is:

a. 74,400
b. 80,400
c. 78,000
d. 99,600

48.Malarky Limited accrued P30,000 for employees long service leave in the year
ended 30 June 2016. This item will not be tax deductible until it is paid in
approximately 10 years time. If the company tax rate is 30% Malarky Limited
must record the following tax effect as a balance date adjustment:

a. credit Deferred tax liability P9,000

b. credit Deferred tax asset P9,000
c. debit Deferred tax liability P9,000
d. debit Deferred tax asset P9,000

49.Which of the following factors must an entity consider in assessing the

probability that a deferred tax asset from a tax loss can be recognised:

a. whether the entity has sufficient deductible temporary differences which will
result in taxable amounts in future so that the tax losses can be used
b. whether tax planning opportunities are available to the entity that will
create sufficient future taxable profits to recover the tax losses
c. whether the unused tax losses result from identifiable causes which are
likely to recur
d. whether it is guaranteed that the entity will have future taxable profits
before the tax losses expire

50.A company commenced business on 1 July 2016. On 30 June 2017, an extract of

the statement of financial position prepared for internal purposes, but
excluding the effect of income tax, disclosed the following information:

Assets
Cash 40,000
Inventory 100 000
Plant 300,000
Accumulated depreciation (30 000)

Liabilities
Accounts payable 80,000
 Long service leave 5,000

Additional information:
 The plant was acquired on 1 July 2016. Depreciation for accounting
purposes was 10% (straight-line method), while 15% (straight-line) was used
for tax purposes.
 The tax rate is 30%.

The deferred tax liability is:

a. 4,500
b. 34,500
c. 1,500
d. 15,000

51.Carry-forward tax losses create:

a. a deductible temporary difference and therefore a deferred tax liability in

that the company will pay more tax on future taxable profits
b. a taxable temporary difference and therefore a deferred tax asset in that the
company will pay less tax on future taxable profits
c. a deductible temporary difference and therefore a deferred tax asset in that
the company will pay more tax on future taxable profits
d. a deductible temporary difference and therefore a deferred tax asset in that
the company will pay less tax on future taxable profits

52.On 1 April 2015, the company rate of income tax changed from 35% to 30%. At
the previous reporting date (30 June 2014) Monty Limited had the following tax
balances:

Deferred tax assets P20,250

Deferred tax liabilities 15,000

What is the impact of the tax rate change on income tax expense?

a. Decrease P750
b. Increase P750
c. Decrease P875
d. Increase P875

53.The following information was extracted from the financial records of Panda
Limited: equipment purchased on 1 July 2016 for P140,000 (accounting
depreciation 10% straight line; tax depreciation 20% straight line). If the
company tax rate is 30%, the deferred tax item that will be recorded by Panda
Limited at 30 June 2017 is which of the following?

a. Credit: Deferred tax liability P4,200

b. Credit: Deferred tax asset P4,200
c. Debit: Deferred tax asset P14,000
d. Debit: Deferred tax liability P14,000
54.The following information was extracted from the financial records of Pamakari
Limited: Equipment purchased on 1 July 2016 for P100,000 (accounting
depreciation 10% straight line tax depreciation 20% straight line). If the
company tax rate is 30%, the deferred tax item that will be recorded by
Pamakari Limited at 30 June 2017 is:

a. debit Deferred tax liability P3,000

b. credit Deferred tax liability P3,000
c. debit Deferred tax asset P3,000
d. credit Deferred tax asset P3,000

55.Jackson Limited had the following deferred tax balances at reporting date:

Deferred tax assets P10,000

Deferred tax liabilities 26,000

Effective from the first day of the next financial period, the company rate of
income tax was reduced from 40% to 30%. The adjustment to income tax
expense to recognise the impact of the tax rate change is:

a. Credit: P4,000.
b. Credit: P5,333.
c. Debit: P5,333.
d. Debit: P4,000.

56.During the year ended 30 June 2013 Barry Ltd, pays quarterly tax instalments
as follows:

 P4,000 on 28 October 2012

 P11,000 on 28 February 2013
 P12,000 on 28 April 2013

On 30 June 2013, Barry Ltd determines its total current tax liability for the year
to be P33,000.

The final tax instalment for the year will be:

a. a payment of P33,000
b. a payment of P6,000
c. a refund of P2,000
d. a payment of P12,000

Undefined:

57.Tantrum Company began operations at the beginning of the current year. At the
end of the first year of operations, the entity reported P6,000,000 income
before income tax in the income statement but only P5,100,000 taxable income
in the tax return. Analysis of the P900,000 difference revealed that P500,000
 was permanent difference and P400,000 was a temporary tax liability difference
related to a current asset. The enacted tax rate for the current year and future
years is 30%.

What is the total income tax expense to be reported in the income statement for
the current year?

a. 1,800,000
b. 1,530,000
c. 1,650,000
d. 1,950,000

58.In 2015, Tiger Company reported pretax financial income of P5,000,000.

Included in the pretax financial income are P900,000 of nontaxable life
insurance proceeds received as a result of the death officer, P1,200,000 of
estimated warranty expense accrued on December 31, 2015, and P200,000 of
life insurance premiums for a policy for an officer. No income tax was
previously paid during the year and the income tax rate is 30%.

What is the income tax payable on December 31, 2015?

a. 1,500,000
b. 1,230,000
c. 1,290,000
d. 1,650,000

59.Pine Company reported pretax financial income of P800,000 for the year ended
December 31, 2015. In the computation of income taxes, the following data
were considered:

Nontaxable gain 350,000

Depreciation deducted for tax purposes in excess of 50,000
depreciation
deducted for book purposes
Estimated tax payment in 2015 70,000
Enacted tax rate 30%

What amount should be reported as current tax liability on December 31, 2015?

a. 135,000
b. 120,000
c. 50,000
d. 65,000

What is the total income tax expense?

a. 120,000
b. 135,000
c. 240,000
d. 85,000
60.Huskie Company reported in the income statement for the current year pretax
income of P400,000. The following items are treated differently per tax return
and per book:

Tax return Book

Royalty income 20,000 40,000
Depreciation expense 125,000 100,000
Payment of a penalty None 15,000
Income tax rate 30%

What amount should be reported as current portion of income tax expense?

a. 111,000
b. 106,500
c. 138,000
d. 114,000

What is the total tax expense?

a. 120,000
b. 124,500
c. 115,500
d. 117,000

61.During the current year, Everlasting Company reported accounting income of

P9,000,000 before income tax. The entity revealed the following information for
the current year:

Interest income on government bonds 700,000

Depreciation claimed on tax return in excess of depreciation 1,300,000
per book
Warranty expense on the accrual basis 600,000
Actual warranty payment 300,000
Income from installment sale reported for tax purposes in 200,000
excess of
income recognized per book
Income tax rate 30%

What is the current tax liability at year-end?

a. 2,700,000
b. 2,250,000
c. 2,490,000
d. 2,130,000

62.Canterbury Company made an accounting profit of P4,000,000 for the current

year which included the following items of income and expense:

Donation to political parties (nondeductible) 1,000,000

 Depreciation – 20% 1,600,000
Annual leave expense 700,000
Rent revenue 1,200,000
Income tax rate 30%

For tax purposes, the depreciation rate is 25%, the annual leave paid is
P800,000 and the rent received is P1,000,000. The entity followed the cash
basis for tax purposes.

What is the current tax liability at year-end?

a. 1,200,000
b. 1,290,000
c. 1,368,500
d. 1,150,000

63.Herbie Company had cumulative taxable temporary differences on December

31, 2015 and December 31, 2014 of P1,350,000 and P960,000, respectively. The
tax rate for 2015 is 40% while the tax rate for future years is 30%. Taxable
income for 2015 is P2,400,000 and there are no permanent difference.

What is the pretax financial income for 2015?

a. 3,750,000
b. 2,790,000
c. 2,010,000
d. 1,050,000

64.Cascade Company is determining the amount of the pretax accounting income

for the current year by making adjustment to taxable income from the income
tax return. The tax return showed taxable income of P4,000,000 on which a tax
liability of P1,200,000 has been recognized.

The entity provided the following items that may be required to determine
pretax accounting income from the amount of taxable income:

 Accelerated depreciation for income tax purposes was P500,000. Straight

line financial depreciation on these assets is P400,000.
 Goodwill impairment loss of P300,000 was not included as a deduction in the
tax return but may be deducted in the income statement.
 Interest income on treasury bills was not included in the tax return. During
the year, P600,000 was received on these investments.

What is the pretax accounting income for the current year?

a. 4,100,000
b. 4,200,000
c. 4,300,000
d. 4,400,000
65.On January 1, 2015, Midland Company purchased a machine for P1,400,000.
This machine has a 5-year useful life, a residual value of P200,000 and is
depreciated using the straight line method for financial statement purposes. For
tax purposes, depreciation was P500,000 for 2015 and P400,000 for 2016. The
2016 income before tax and depreciation was P2,000,000 and the tax rate was
30%. The entity made estimated tax payment of P200,000 during 2016.

What is the income tax payable on December 31, 2016?

a. 480,000
b. 280,000
c. 450,000
d. 250,000

What is the total income tax expense that is reported in the 2016 income
statement?

a. 480,000
b. 450,000
c. 528,000
d. 540,000

66.Punk Company reported the following partial income statement after the first
year of operations:

Income before income tax 3,750,000

Income tax expense
Current 1,035,000
Deferred 90,000 1,125,000
Net income 2,625,000

The entity used the straight line method of depreciation for financial reporting
purposes and accelerated depreciation for tax purposes. The amount charged to
depreciation expense per book was P1,500,000. No other differences existed
between book income and taxable income except for the amount of
depreciation. The income tax rate is 30%.

What amount was deducted for depreciation in the tax return for the current
year?

a. 1,200,000
b. 1,425,000
c. 1,500,000
d. 1,800,000

67.Jasco Company is in the first year of operations. The entity reported pretax
accounting income of P4,000,000 and provided the following items.

Premium on life insurance of key officer 100,000

Depreciation on tax return in excess of book depreciation 120,000
 Interest on municipal bonds 53,000
Warranty expense 40,000
Actual warranty repairs 33,000
Bad debt expense 14,000
Beginning balance in allowance for uncollectible accounts 0
Ending balance in allowance for uncollectible accounts 8,000
Rent received in advance that will be recognized evenly over
the next 240,000
three years

What is the taxable income for the first year?

a. 4,182,000
b. 4,102,000
c. 4,047,000
d. 4,082,000

68.In arriving at the profit before tax for the year ended December 31, 2015, Jerry
Company has accrued royalties receivable of P200,000 and interest payable of
P250,000. Both royalties and interest are dealt with on a cash basis in tax
computations.

What is the net temporary difference on December 31, 2015?

a. 450,000 taxable temporary difference

b. 450,000 deductible temporary difference
c. 50,000 deductible temporary difference
d. 50,000 taxable temporary difference

69.Caleb Company has three financial statement elements for which the year-end
carrying amount is different from the tax basis:

Carrying
Tax basis Difference
amount
Equipment 200,000 120,000 80,000
Prepaid officers’ insurance policy 75,000 0 75,000
Warranty liability 50,000 0 50,000

What is the total amount of future taxable differences?

a. 205,000
b. 155,000
c. 80,000
d. 50,000

70.Gem Company has interest receivable which has a carrying amount of

P1,000,000 on December 31, 2015. The related interest revenue will be taxed
on a cash basis in 2016. The entity has trade receivables that have a carrying
amount of P5,000,000 on December 31, 2015. The related revenue has been
recognized in profit or loss and for tax purposes for 2015.
 What is the total tax base of interest receivable and trade receivables on
December 31, 2015?

a. 5,000,000
b. 6,000,000
c. 1,000,000
d. 0

71.On January 1, 2015, North Company has spent P600,000 in developing a new
product. This cost meets the definition of an intangible asset. The tax law allows
this cost to be deducted for tax purposes when paid. Thus, the entity has
recognized this amount as expense in 2015 for tax purposes. On December 31,
2015, the intangible asset is deemed impaired by P50,000.

What is the tax base for the intangible asset on December 31, 2015?

a. 600,000
b. 550,000
c. 650,000
d. 0

72.At year-end, South Company has revalued a property and has recognized the
increase in the revaluation in the financial statements. The carrying amount of
the property was P8,000,000 and the revalued amount was P10,000,000.
However, the tax base of the property was only P6,000,000. The income tax rate
is 30%.

What is the deferred tax asset or liability at year-end?

a. 1,200,000 asset
b. 1,200,000 liability
c. 600,000 asset
d. 600,000 liability

73.In the December 31, 2015 statement of financial position, Shin Company had
income tax payable of P130,000 and a deferred tax asset of P200,000. The
entity had operated a deferred tax asset of P150,000 on January 1, 2015. No
estimated tax payments were made during 2015.

What amount should be reported as total income tax expense for 2015?

a. 80,000
b. 180,000
c. 100,000
d. 130,000

74.On January 1, 2015, Bolton Company reported a deferred tax liability of

P1,000,000 and a deferred tax asset of P400,000. At the end of 2015, the entity
reported a deferred tax liability of P1,500,000 and a deferred tax asset of zero.
 What is the deferred tax expense for 2015?

a. 500,000
b. 900,000
c. 400,000
d. 100,000

75.Shear Company began operations in 2015. Included in the 2015 financial

statements were bad debt expense of P400,000 and profit from an installment
sale of P1,000,000. For tax purposes, the bad debts will be deducted and the
profit from the installment sale will be recognized in 2016. The tax rate is 30%.

In the income statement, what amount should be reported as deferred tax

expense?

a. 180,000
b. 300,000
c. 120,000
d. 0

76.On December 31, 2015, Thorn Company reported tax effects of temporary
differences as follows:

Deferred tax Related asset

asset classification
(liability)
Accelerated tax depreciation (75,000) Noncurrent
Additional cost in inventory for tax 25,000 Current
purposes

The entity anticipated that P10,000 of the deferred tax liability will reverse in
2017.

On December 31, 2015, what amount should be reported as noncurrent

deferred tax liability?

a. 40,000
b. 50,000
c. 65,000
d. 75,000

77.In 2015, Lobo Company reported for financial statement purposes the following
revenue and expenses which were not included in taxable income:

Premiums on officer’s life insurance under which the corporation

is the 50,000
beneficiary
Interest revenue on municipal bonds 100,000
Estimated future warranty cost to be paid in 2016 and 2017 600,000
 The tax rate is 30%. There were no temporary differences in prior years.

What is the deferred tax benefit to be applied against current tax expense?

a. 210,000
b. 225,000
c. 195,000
d. 180,000

78.Aries Company reported a deferred tax asset of P9,000 on January 1, 2015. The
entity reported pretax financial income of P300,000 for 2015. Temporary
differences of P100,000 resulted in taxable income of P200,000 for 2015. On
December 31, 2015 the entity had cumulative taxable differences of P70,000
and no cumulative deductible differences. The income tax rate is 30%.

What amount should be reported as deferred tax expense for 2015?

a. 12,000
b. 21,000
c. 30,000
d. 60,000

79.On January 1, 2013, Marilyn Company purchased a P600,000 machine, with a

five-year useful life and no residual value. The machine was depreciated by an
accelerated method for book and tax purposes. The carrying amount was
P240,000 on December 31, 2014. On January 1, 2015, the entity changed to the
straight-line method for financial reporting purposes. The income tax rate is
30%.

On January 1, 2015, what amount should be reported as deferred tax liability as

a result of the change?

a. 120,000
b. 72,000
c. 36,000
d. 0

80.Canterbury Company has one temporary difference at the end of 2015 that will
reverse and cause taxable amount of P1,100,000 in 2016, P1,200,000 in 2017
and P1,200,000 in 2018. The entity has also a deductible temporary difference
of P1,500,000. The pretax accounting income for 2015 is P6,000,000 and the
tax rate is 30%. There are no deferred taxes at the beginning of 2015.

What is the current tax expense for 2015?

a. 1,800,000
b. 1,920,000
c. 1,200,000
d. 2,400,000
 What is the net deferred tax expense for 2015?

a. 1,050,000
b. 1,200,000
c. 600,000
d. 450,000

81.On December 31, 2015, Ramona Company reported a deferred tax liability of
P900,000 which was attributable to a taxable temporary difference of P300,000.
The temporary difference is scheduled to reverse in 2017. During 2016, a new
tax law increased the corporate tax rate from 30% to 40%.

What account and amount should be debited to record the change in tax rate?

a. Retained earnings P30,000

b. Retained earnings P9,000
c. Income tax expense P9,000
d. Income tax expense P30,000

82.Noy Company had a deferred tax liability due to a temporary difference on

January 1, 2015 related to excess tax depreciation of P600,000. In December
2015, the income tax rate is reduced from 30% to 25%, effective January 1,
2017. The taxable amount related to the temporary difference is to be reversed
by P300,000 each year for 2016 and 2017.

What is the amount of the increase or decrease in the deferred tax liability on
December 31, 2015?

a. 30,000 decrease
b. 15,000 decrease
c. 15,000 increase
d. 30,000 increase

83.Aloha Company provided the following information on December 31, 2015:

Carrying Tax base

amount
Accounts receivable 1,500,000 1,750,000
Motor vehicle 1,650,000 1,250,000
Provision for warranty 120,000 0
Deposit received in advance 150,000 0

The depreciation rates for accounting and taxation are 15% and 25%
respectively. The deposits are taxable when received and warranty costs are
deductible when paid. An allowance for doubtful debts of P250,000 has been
raised against accounts receivable for accounting purposes but such debts are
deductible only when written off as uncollectible. The tax rate is 30%.
 What amount should be reported as deferred tax liability on December 31,
2015?

a. 120,000
b. 156,000
c. 81,000
d. 36,000

84.West Company reported the following carrying amount of assets and liabilities
on December 31, 2015:

Property 10,000,000
Plant and equipment 5,000,000
Inventory 4,000,000
Trade receivables 3,000,000
Trade payables 6,000,000
Cash 2,000,000

The value for tax purposes for plant and equipment was P7,000,000 and
P4,000,000, respectively. The entity has made a provision for inventory
obsolescence of P2,000,000 which is not allowable for tax purposes. Further, an
impairment loss against trade receivables of P1,000,000 has been made. This
charge will not be allowed in the current year for tax purposes. The tax rate is
30%.

What amount should be recognized as deferred tax expense for 2015?

a. 1,400,000
b. 1,200,000
c. 350,000
d. 300,000

85.Ranger Company located business in two jurisdictions, Singapore and Malaysia.

In both countries, the entity has the legal right to offset the taxes receivable
and payable. The following information related to deferred tax assets and
liabilities:

Classification Amount Taxing jurisdiction

Deferred tax asset 800,000 Singapore
Deferred tax liability 300,000 Malaysia
Deferred tax liability 600,000 Singapore

How should the entity present deferred taxes at year-end?

Deferred tax asset Deferred tax

laibility
a. 800,000 900,000
b. 0 1,000,000
c. 200,000 600,000
d. 200,000 300,000
86.Chamber Company reported the following differences between the book basis
and tax basis of assets and liabilities on December 31, 2015 which is the end of
the first year of operations:

Carrying Tax base

amount
Installment accounts receivable 1,000,000 0
Litigation liability 200,000 0

It is expected that the litigation liability will be settled in 2016. The difference
in accounts receivable will result in taxable amounts of P600,000 in 2016 and
P400,000 in 2017. The entity has a taxable income of P7,000,000 in 2015 and is
expected to have taxable income in each of the following two years. The income
tax rate is 30%.

What is the current tax expense?

a. 2,400,000
b. 2,040,000
c. 2,100,000
d. 2,460,000

What is the deferred tax expense?

a. 300,000
b. 360,000
c. 240,000
d. 60,000

What is the total tax expense?

a. 2,460,000
b. 2,400,000
c. 2,340,000
d. 1,860,000

87.Zeff Company prepared the following reconciliation of pretax financial

statement income to taxable income for the first year of operations:

Pretax financial income 1,600,00

0
Nontaxable interest received (50,000)
Long-term loss accrual in excess of deductible amount 100,000
Depreciation in excess of financial depreciation (250,000
)
Taxable income 1,400,00
0
 If the tax income is 30%, what amount should be reported as income tax
expense – current portion in the income statement?

a. 465,000
b. 420,000
c. 480,000
d. 390,000

What amount should be reported as deferred tax liability at year-end?

a. 30,000
b. 45,000
c. 75,000
d. 0

What amount should be reported as deferred tax asset at year-end?

a. 30,000
b. 75,000
c. 45,000
d. 70,000

What amount should be reported as total tax expense for the first year?

a. 480,000
b. 465,000
c. 420,000
d. 435,000

88.Stabilizer Company reported taxable income of P8,000,000 in the income tax

return for the first year of operations. Temporary differences between financial
income and taxable income for the year are as follows:

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 2,600,000
sales income
Income tax rate 30%

What is the deferred tax asset at year-end?

a. 240,000
b. 360,000
c. 780,000
d. 0

What is the deferred tax liability at year-end?

a. 1,020,000
 b. 780,000
c. 240,000
d. 0

What is the deferred tax expense for the first year?

a. 1,380,000
b. 1,020,000
c. 660,000
d. 360,000

What is the total tax expense for the first year?

a. 3,060,000
b. 2,400,000
c. 2,580,000
d. 2,220,000

89.On December 31, 2015, the accounts of Simple Company have the same basis
for accounting and tax purposes, except the following:

Carrying
Tax base Difference
amount
Computer software cost 4,000,000 0 4,000,000
Equipment 15,000,000 12,000,000 3,000,000
Accrued liability – health care 2,000,000 0 2,000,000

In January 2015, the entity incurred cost of P6,000,000 in relation to the

development of a computer software product. The software cost was
appropriately capitalized and amortized over 3 years for accounting purposes
using straight line. However, the total amount was expensed in 2015 for tax
purposes.

The equipment was acquired on January 1, 2015 for P20,000,000. The useful
life is 4 years with no residual value. The equipment is depreciated using the
straight line for accounting purposes and sum of years’ digits method for tax
purposes.

In January 2015, the entity entered into an agreement with the employees to
provide health care benefits. The cost of such plan for 2015 was P2,000,000.
This amount was accrued as expense in 2015 for accounting purposes.
However, health care benefits are deductible for tax purposes only when
actually paid.

The pretax accounting income for 2015 is P13,000,000. The tax rate is 30% and
there are no deferred taxes on January 1, 2015.

What is the current tax expense for the current year?

a. 3,900,000
 b. 2,400,000
c. 3,300,000
d. 1,500,000

What is the deferred tax expense for the current year?

a. 2,100,000
b. 2,700,000
c. 1,500,000
d. 600,000

What is the total tax expense for the current year?

a. 3,900,000
b. 4,500,000
c. 5,100,000
d. 1,500,000

90.Venus Company had no prior deferred tax balances. The worksheet for
calculating current and deferred taxes for 2015 is as follows:

2015 2016 2017

Pretax financial income 1,400
Temporary differences:
Depreciation (800) (1,200) 2,000
Warranty costs 400 (100) (300)
Taxable income 1,000

Income tax rate 30% 30% 25%

Deferred tax asset 105

Deferred tax liability 140

What is the current tax expense?

a. 420
b. 350
c. 300
d. 0

What is the deferred tax expense?

a. 350
b. 300
c. 120
d. 35

91.Bond Company started to manufacture in 2015 copy machines that are sold on
the installment basis. The entity recognized revenue when equipment is sold for
 financial reporting purposes, and when installment payments are received for
tax purposes.

In 2015, the entity recognized gross profit of P6,000,000 for financial reporting
purposes, and P1,500,000 for tax purposes. The amounts of gross profit
expected to be recognized for tax purposes in 2016 and 2017 are P2,500,000
and P2,000,000, respectively.

The entity guaranteed the copy machines for two years. Warranty costs are
recognized on the accrual basis for financial accounting purposes and when
paid for tax purposes.

Warranty expense accrued in 2015 is P2,500,000, but only P500,000 of

warranty cost is paid in 2015. It is expected that in 2016 and 2017, P1,000,000
and P1,000,000 respectively, of warranty cost is paid.

In addition during 2015, P500,000 interest, net of 20% final income tax, was
received and earned, and P100,000 insurance premium on life insurance policy
that covered the life of the president was paid. The entity is the beneficiary. The
tax rate is 30%. Pretax accounting income in 2015 was P2,000,000. Any
operating loss for 2015 will be carried to 2016.

What is the deferred tax asset on December 31, 2015?

a. 870,000
b. 600,000
c. 270,000
d. 480,000

What is the deferred tax liability on December 31, 2015?

a. 1,800,000
b. 1,350,000
c. 1,500,000
d. 1,320,000

What is the total tax expense for the current year?

a. 600,000
b. 630,000
c. 480,000
d. 0

92.On January 1, 2012, Easy Company acquired an equipment for P8,000,000. The
equipment is depreciated using straight line method based on a useful life of 8
years with no residual value. On January 1, 2015, 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 2015 is P10,000,000.
The income tax rate is 30% and there are no other temporary differences at the
beginning of the year.
 What is the deferred tax liability on January 1, 2015 arising from the
revaluation?

a. 1,200,000
b. 450,000
c. 750,000
d. 0

What is the current tax expense for the current year?

a. 2,700,000
b. 3,000,000
c. 3,450,000
d. 3,300,000

What is the deferred tax liability on December 31, 2015 arising from the
revaluation?

a. 750,000
b. 450,000
c. 600,000
d. 0

What is the total tax expense for the current year?

a. 2,550,000
b. 3,000,000
c. 2,700,000
d. 3,750,000

What is the revaluation surplus on December 31, 2015?

a. 2,500,000
b. 1,750,000
c. 1,400,000
d. 2,000,000