Answers & Questions

Net Income before tax 5,000,000

Interest income subject to final tax 26,000

Dividend income 42,000
Fines and penalties paid to BIR 195,000
Doubtful accounts expense 250,000
Warranty cost 350,000
Unrealized gain on trading securities 165,000
Unrealized loss on cash flow hedge 456,000
Unrealized gain on AFS securities 197,500
Employee benefit expense 490,000
Remeasurement gain 150,000
Increase in revaluation increment 750,000
Depreciation on revaluation increment 125,000
Rent received in advance 460,000
Receipts already recognized as revenue but taxable in future years 330,000

Net Income before tax 5,000,000

Interest income subject to final tax (26,000)

Dividend income (42,000)
Fines and penalties paid to BIR 195,000
Depreciation on revaluation increment 125,000
5,252,000

Doubtful accounts expense 250,000

Warranty cost 350,000
Unrealized gain on trading securities (165,000)
Employee benefit expense 490,000
Rent received in advance 460,000
Receipts already recognized as revenue but taxable in future years (330,000)
Taxable income 6,307,000

Current tax expense 1,892,100

Deferred tax assets (465,000)
Deferred tax liabilities 148,500
Total Income Tax Expense 1,575,600

Doubtful accounts expense 250,000 75,000

Warranty cost 350,000 105,000
Unrealized gain on trading securities 165,000 49,500
Unrealized loss on cash flow hedge 456,000 136,800
Unrealized gain on AFS securities 197,500 59,250
Employee benefit expense 490,000 147,000
Remeasurement gain 150,000 45,000
Increase in revaluation increment 750,000 225,000
Depreciation on revaluation increment 125,000 37,500
Rent received in advance 460,000 138,000
Receipts already recognized as revenue but taxable in future years 330,000 99,000

Net Income before tax 5,000,000

Income tax at30% 1,500,000

Interest income subject to final tax (7,800)

Dividend income (12,600)
Fines and penalties paid to BIR 58,500
Depreciation on revaluation increment 37,500
1,575,600
 75,000 DTA
105,000 DTA
(49,500) DTL
147,000 DTA
138,000 DTA
(99,000) DTL
1,892,100

Deferred Tax Asset Deferred Tax Liability

P/L OCI P/L OCI
75,000
105,000
49,500
136,800
59,250
147,000
45,000
225,000
(37,500)
138,000
99,000

465,000 136,800### 148,500 291,750

Assignment Answer

Deferred tax assets 1,505,400

Deferred tax liabilities 340,800

2013 2014

Accrued benefit cost

Beginning balance 3,500,000 3,385,000
Retirement expense 1,450,000 1,755,000
Remeasurement loss/(gains) (365,000) 245,000
Contributions (1,200,000) (1,400,000)
3,385,000 3,985,000

Allowance for doubtful accounts

Beginning balance 750,000 617,000
Additional Provision 112,000 267,000
Writeoff (245,000) (159,000)
617,000 725,000

Unrealized loss on cash flow hedge

Beginning balance 218,400 155,400
Reversal (218,400) (155,400)
Year-end adjustment 155,400 325,500
155,400 325,500

Unrealized gain on trading

Beginning balance 136,000 216,000
Reversal (136,000) (216,000)
Year-end adjustment 216,000 312,000
216,000 312,000

Unearned revenue
Beginning balance 456,000 625,000
Applied to revenue (456,000) (625,000)
Advance rent received 625,000 368,000
625,000 368,000

Gross Income on installment sales

Recognized as revenue 1,150,000 954,000
Recognized as taxable income 580,000 756,000
570,000 198,000

Revaluation suprlus, net of DTL

Beginning balance 700,000 2,999,500
Increase in revaluation surplus 2,520,000
Depreciation on revaluation surplus (220,500) (220,500)
2,999,500 2,779,000

2013 2014
Net Income before tax 6,250,000 7,410,000

Permanent differences
Interest income subject to final tax (65,000) (75,000)
Dividend income (125,000) (140,000)
Depreciation on revaluation surplus 315,000 315,000
Fines and penalties paid to BIR 110,000 40,000

Net Income before Temporary difference 6,485,000 7,550,000

Temporary differences
Accrued benefit cost
Retirement expense 1,450,000 1,755,000
Contributions (1,200,000) (1,400,000)
Allowance for doubtful accounts
Additional Provision 112,000 267,000
Writeoff (245,000) (159,000)
Unrealized gain on trading
Reversal of unrealized gain 136,000 216,000
Year-end adjustment (216,000) (312,000)
Applied to revenue (456,000) (625,000)
Advance rent received 625,000 368,000
Recognized as revenue (1,150,000) (954,000)
Recognized as taxable income 580,000 756,000

6,121,000 7,462,000

Current tax expense 1,836,300 2,238,600

Deferred Tax Expense/(Benefit)

Deferred Tax Liability
Reversal of unrealized gain (40,800) (64,800)
Year-end adjustment 64,800 93,600
Recognized as revenue 345,000 286,200
Recognized as taxable income (174,000) (226,800)
Deferred Tax Asset
Retirement expense (435,000) (526,500)
Contributions 360,000 420,000
Additional Provision (33,600) (80,100)
Writeoff 73,500 47,700
Applied to revenue 136,800 187,500
 Advance rent received (187,500) (110,400)

Deferred tax expense 109,200 26,400

Total Income Tax Expense 1,945,500 2,265,000

OCI
Accrued benefit cost
Remeasurement loss/(gains) 109,500 (73,500)
Unrealized loss on cash flow hedge
Reversal 93,600 66,600
Year-end adjustment (66,600) (139,500)
Revaluation suprlus, net of DTL
Increase in revaluation surplus 1,080,000
Depreciation on revaluation surplus (94,500) (94,500)

1,122,000 (240,900)

Deferred Tax Assets

Deferred Tax Liabilities
December 31, 2012 1,505,400 340,800
Recognized in P and L
Provisions/Additions 656,100 409,800
Reductions or reversals (570,300) (214,800)
Recognized in OCI
Provisions/Additions (203,100) 1,080,000
Reductions or reversals 66,600 (94,500)
December 31, 2013 1,454,700 1,521,300
Recognized in P and L
Provisions/Additions 717,000 379,800
Reductions or reversals (655,200) (291,600)
Recognized in OCI
Provisions/Additions 6,900 -
Reductions or reversals 139,500 (94,500)
December 31, 2014 1,662,900 1,515,000
 SOLUTION

Asset Liability
1 Deferred tax asset, beginning 475,000
Deferred tax liability, beginning 326,000

Net Income before tax 7,500,000

Interest income 136,000
7,364,000
Accounts written off (225,000) (67,500)
Actual disbursement of warranty (340,000) (102,000)
Actual gain on sale of AFS security, included in net income - -
Doubtful accounts expense 360,000 108,000
Gross profit on sales not yet taxable but recognized in the current year (280,000) 84,000
Unearned rent revenue, beginning (756,000) (226,800)
Unearned rent revenue, ending 267,000 80,100
Unrealized gain on held for trading (420,000) 126,000
Warranty expense 310,000 93,000 Deferred Tax Expense
Taxable income 6,280,000 (115,200) 210,000 325,200

Tax due 1,884,000 359,800 536,000 Ending balance

Quarterly payments 100,000
BIR form 2307 50,000

Income tax payable 1,734,000

2 Deferred tax asset, beginning 625,000

Deferred tax liability, beginning 420,000
 Net Income before tax 4,500,000
Interest income 260,000
4,240,000
Accounts written off (157,000) (47,100)
Actual disbursement of warranty (452,000) (135,600)
Actual gain on sale of AFS security, included in net income - -
Doubtful accounts expense 190,000 57,000
Gross profit on sales not yet taxable but recognized in the current year (280,000) 84,000
Unearned rent revenue, beginning (258,000) (77,400)
Unearned rent revenue, ending 240,000 72,000
Unrealized gain on held for trading (650,000) 195,000
Warranty expense 367,000 110,100 Deferred Tax Expense
Taxable income 3,240,000 (21,000) 279,000 300,000

Tax due 972,000 604,000 699,000 Ending balance

Quarterly payments 250,000
BIR form 2307 30,000

Income tax payable 692,000

3 Deferred tax asset, beginning 500,000

Deferred tax liability, beginning 336,000

Net Income before tax 3,600,000

Interest income 208,000
3,392,000
Accounts written off (125,600) (37,680)
Actual disbursement of warranty (361,600) (108,480)
Actual gain on sale of AFS security, included in net income - -
Doubtful accounts expense 152,000 45,600
 Gross profit on sales not yet taxable but recognized in the current year (224,000) 67,200
Unearned rent revenue, beginning (206,400) (61,920)
Unearned rent revenue, ending 192,000 57,600
Unrealized gain on held for trading (520,000) 156,000
Warranty expense 293,600 88,080 Deferred Tax Expense
Taxable income 2,592,000 (16,800) 223,200 240,000

Tax due 777,600 483,200 559,200 Ending balance

Quarterly payments 200,000
BIR form 2307 24,000

Income tax payable 553,600

4 Deferred tax asset, beginning 570,000

Deferred tax liability, beginning 391,200

Net Income before tax 9,000,000

Interest income 408,000
8,592,000
Accounts written off (270,000) (81,000)
Actual disbursement of warranty (408,000) (122,400)
Actual gain on sale of AFS security, included in net income - -
Doubtful accounts expense 432,000 129,600
Gross profit on sales not yet taxable but recognized in the current year (336,000) 100,800
Unearned rent revenue, beginning (907,200) (272,160)
Unearned rent revenue, ending 320,400 96,120
Unrealized gain on held for trading (504,000) 151,200
Warranty expense 372,000 111,600 Deferred Tax Expense
Taxable income 7,291,200 (138,240) 252,000 390,240
Tax due 2,187,360 431,760 643,200 Ending balance
Quarterly payments 120,000
BIR form 2307 60,000

Income tax payable 2,007,360