JARD-REF3-L-INCOMETAXES

-ADAMSON UNIVERSITY- Page 1 of 1

ACCOUNTING FOR INCOME TAXES

Accounting Income vs Taxable Income Accounting Income

Also called financial income, is pre-tax income based inaccordance with financial accounting standards.

Taxable IncomeIncome measured in accordance with tax laws andregulations through the Bureau of Internal Revenue.

Differences between Taxable and Financial Income Non-temporary or Permanent Difference

Items included in the financial income but never intaxable income termed as non-taxable revenue andnon-deductible expenses.

No deferred taxes are recognized since no future taxconsequences are created.

Non-taxable or tax exempt inome Gain from settlement of life insurance of

officers and employees where thee corporationis named the beneficiary.

Dividend revenue by a domestic corporation ornon-resident corporation from a domesticcorporation.

Non-deductible expenses Fines and penalties for violations of law Charitable contribution in excess of tax

limitations Premiums on life insurance for officers and

employees Impairment loss on goodwill

Pretax financial income xxNondeductible income xxNontaxable income (xx)Financial income subject to tax xxFuture deductible amounts xxFuture taxable amounts (xx)Taxable Income xx

Temporary Differences Certain items that are included in financial income

earlier or later than in taxable income. Recognized for both financial and tax reporting but

at different time periods. Difference will recognized deferred tax liability if the

financial income is greater than taxable income and adeferred tax asset if the financial income is lesserthan taxable income.

Classification of temporary differences Taxable temporary differences

Results to deferred tax liability / future taxableamounts. Financial income > Taxable Income Asset carrying amount > Asset tax base Liability carrying amount < Liability tax

base Deductible temporary differences

Results to deferred tax assets / futuredeductible amounts. Financial Income < Taxable Income Asset carrying amount < Asset tax base Liability carrying amount > Liability tax

base

Income Tax Expense-Current* xxIncome Tax Expense-Deferred xxDeferred Tax Asset** xx

Deferred Tax Liability*** xxIncome Tax Payable* xx

*based on Taxable Income**based on Future Taxable Amounts***based on Future Deductible Amounts