Problem 1

VC Company started operations on January 1, 2015. At the end of the first year of operations, VC Company
reported pre-tax income of P2,000,000. An analysis of the components included in this computation was a
P300,000 non-taxable revenue and instalment sales of P400,000 of which P250,000 remained uncollected (due
March 15, 2015).

For tax purposes, income from instalments sales is taxable only when cash is collected.

The enacted tax rates for 2015 and future years is 30%.
a. Taxable income
b. Income tax expense current
c. Income tax expense (benefit) deferred

Problem 2
At the end of 2015, RP companys first year of operations reported pretax financial income of P4,500,000.
Included under expenses was a P300,000 non-deductible expense. Furthermore, RP Company includes a 12-year
warranty on its machinery sales. An analysis of the warranty records reveals that it has recorded and accrued
warranty provisions of P500,000. Cost and expenses under this classification, however, are deductible only for
tax purposes when paid.

The enacted tax rates for 2015 and future years is 30%.
a. Taxable income
b. Income tax expense current
c. Income tax expense (benefit) deferred

Problem 3
LP Company began operations on January 1, 2015 and reported a pretax financial income, of P1,300,000 as of
the year ending December 31, 2015. This amount includes:
Non taxable revenues (interest on government bonds), P200,000
Non-deductible expenses (penalties and fines), P120,000
Depreciation expense on its machines of P125,000
Rental income of P280,000

The depreciation expense and rental income included in the tax return were higher by P95,00 and P70,000
respectively.

The enacted tax rates for 2015 and future years is 30%.
a. Taxable income for 2015
b. Income tax expense current
c. Income tax expense (benefit) deferred
d. Deferred tax liability
e. Deferred tax asset

Problem 4
JLO Company reported income before taxes of P320,000 for the year ended December 31, 2015. Included in the
computation were the following revenues and expenses:
Donation for a political campaign (non-deductible) P 40,000
Depreciation machinery (20%) 120,000
Salaries expense compensated absences 44,800
Rent revenue 96,000

For tax purposes, the following applies:

Depreciation machinery 25%
Paid compensated absences 52,000
Rent received 80,000

Current year tax expense assuming a tax rate of 30% is

Problem 5
CW Companys pretax income was P2,000,000 and identifies the following differences between financial and
taxable income for the current year.
Excess tax depreciation over book depreciation P 90,000
Interest revenue on government bonds 10,000
Excess estimated warranty expense over actual expenditures 60,000
Unearned rent received 15,000
Fines paid 30,000
Excess income under percentage of completion (financial)
Over completed contract accounting (tax) 75,000
Interest on indebtedness incurred to purchase tax-exempt securities 20,000
Unrealized losses on marketable securities recognized for financial reporting 15,000

Taxable income is

Problem 6
GP Company started to manufacture in 2015 digital cameras. GP Company recognizes revenue when the cameras
are sold for financial reporting purposes, and when instalments are received for tax purposes. In 2015, GP
recognized gross profit of P8,500,000 for financial reporting purposes and P3,000,000 for tax purposes.

GP Company guarantees the cameras for 2 years. Warranty costs are recognized on the accrual basis for financial
accounting purposes and when paid for tax purposes. Warranty expenses accrued in 2015 is P3,000,000, but only
P1,000,000 of the warranty cost is paid in 2015.

In addition, during 2015, P500,000 of interest was received and earned but was non-taxable and P100,000
insurance premium on life insurance policies that covered the life of GP Companys [resident was paid but was
non-deductible for tax purposes.

The tax rate is 30%. Pretax financial income in 2015 was P2,400,000.

Any 2015 net operating loss will be carried in 2016.

a. Taxable income (operating loss)
 b. Gross deferred tax liability
c. Gross deferred tax asset

Problem 7
During 2015, LR Companys first year of operations, the company reports pretax financial income at P900,000.
LR Companys enacted tax rate was 30% for 2015-2016 and 35% for all later years. LR Company expects to have
taxable income in each of the next 5 years. The effects on future tax returns of temporary differences existing at
December 31, 2015 are summarized below:
2016 2017 2018 2019 2020
Future taxable (deductible) amounts:
Instalment sales 30,000 40,000 70,0000
Depreciation 10,000 10,000 10,000 10,000 10,000
Unearned rent (50,000) (50,000) (50,000)

a. Taxable income for 2015

b. Income tax expense current
c. Income tax expense (benefit) deferred
d. Deferred tax asset (liability) in the December 31, 2015 balance sheet
e. Deferred tax asset (liability) in the December 31, 2016 balance sheet

Problem 8
The following facts relate to MJ Company
Deferred tax liability, January 1, 2015; P360,000
Deferred tax asset, January 1, 2015; P105,000
Pretax financial income for 2015; P2,000,000
Non-taxable revenues, P340,000; Non-deductible expenses, P210,000
Cumulative difference at December 31, 2015, giving rise to future taxable amounts, P1,800,000
Cumulative difference at December 31, 2015, giving rise to future deductible amounts, P520,000
Tax rate for current and future years, 30%

a. Income tax expense current

b. Income tax expense (benefit) deferred

Problem 9
The following information was extracted from the records of OY Company as of December 31, 2015:

Carrying amount
Accounts receivable (net realizable amount) 150,000
Prepaid rent 30,000
Motor vehicles 165,00
Accumulated depreciation MV 61,875
Provisions for warranty 12,000
Deposits received in advance 15,000

The depreciation rates for accounting and taxation are 15% and 20% respectively. Deposits are taxable when
received while rentals and warranty costs are deductible when paid. An allowance for doubtful debts of P25,000
has been against accounts receivable for accounting purposes, but such debts are deductible only when written
off as uncollectible. Tax rate applicable was 30%.
a. Deferred tax asset
b. Deferred tax liability

Problem 10
NW Company reported profit before taxes for the year ending December 31, 2015 of P2,000,000 which included
the following items:
Depreciation manufacturing equipment P 4,500
Depreciation delivery vehicles 20,000
Rent revenue 30,000
Royalty revenue 50,000
Doubtful accounts expense 9,000
Entertainment expense 1,500
Proceeds on sale of delivery vehicles 19,000
Carrying amount of delivery vehicles 18,000
Annual leave expense 5,000
The draft balance sheet at December 31, 2015 contained the following:

2016 2015
Assets
Cash P11,500 P9,500
Receivables 12,000 14,000
Allowance for bad debts (5,000) (2,500)
Inventory 19,000 21,500
Rent receivable 9,400 2,400
Manufacturing equipment 18,000 18,000
Accumulated depreciation ME (15,750) (11,250)
Delivery vehicles 100,000 130,000
Accumulated depreciation DV (60,000) (52,000)
Deferred tax asset ? 7.525

Liabilities
Accounts payable 15,655 21,500
Provision for annual leave credits 4,000 6,000
Current tax liability ? 7,600
Deferred tax liability ? 3,203

Additional information:
The manufacturing equipment is fully depreciated for tax purposes.
The delivery vehicles sold at the beginning of 2015 was purchased two years ago at a cost P30,000
Delivery vehicles are depreciated at 15% per year
The royalty income is a non-taxable revenue item, while the entertainment expense is a non-taxable
expense
Bad debts are recognized under the allowance method for financial accounting while the direct write off
method is allowed for tax purposes
Accrual method is used in recording rent income and leave credits; for tax purposes, cash basis is applied
The company rate is 35%
a. Taxable income for 2015
b. Income tax expense current
c. Income tax expense deferred
d. Gross deferred tax asset, December 31, 2015
e. Gross deferred tax liability, December 31, 2015