Deferred Income Tax Asset and Liability

DEFERRED INCOME TAX ASSET AND LIABILITY 1
At December 31, 2019, GALILEE CORPORATION had a temporary difference (related to

depreciation) and reported a related deferred tax liability of P60,000 on its statement of
financial position. At December 31, 2021, Galilee has four temporary differences. An analysis of
these reveals the following:
FUTURE TAXABLE
TEMPORARY DIFFERENCE (DEDUCTIBLE) AMOUNTS
2021 2022 2023
I Use of straight-line
depreciation for accounting
purposes and accelerated
depreciation for tax purposes P 160,000 P 220,000 P 760,000
II Rent collected in advance;

recognized when earned for
accounting purposes and
when received for tax
purposes (380,000) - -
III Various expenses accrued

when incurred for accounting
purposes; recognized for tax
purposes when paid (90,000) - -
IV Recognition of gain on
installment sales during the
period of sale for accounting
purposes and during the
period of collection for tax
276,000 210,000 -
purposes
P 34,000 P 430,000 P 760,000
Assume that the company has income taxes of P435,000 due per the tax return for 2021. The
installment receivable collectible in 2023 is classified as noncurrent. The enacted tax rate is 30%
for all periods.
1. What amount of deferred tax asset should be shown on Galiliee’s statement of financial
position at December 31, 2021?
2. What amount of deferred tax liability should be shown on Galiliee’s statement of
financial position at December 31, 2021?
3. How much is Galiliee’s pretax accounting income for 2021?
4. How much is Galiliee’s net income for 2021?
The following data pertain to the CARROLL COMPANY
I. At December 31, 2021, the company has a P900,000 liability reported for estimated
litigation claims. This P900,000 balance represents amounts that have been charged to
income but are not tax deductible until they are paid. The company expects to pay the
claims and thus have tax-deductible amounts in the future in the following manner:
Year Payments
2024 P 150,000
2025 690,000
2026 60,000
P 900,000
II. The company uses different depreciation methods for financial reporting and tax
purposes. Consequently, at December 31, 2021, the company has a cumulative
temporary difference due to depreciable property of P2,400,000. This P2,400,000
cumulative temporary difference is to result in taxable amounts in the future years in
the following manner:
Year Payments
2022 P 480,000
2023 480,000
2024 480,000
2025 480,000
2026 480,000
P 2,400,000
III. The income tax rate is 30%.

IV. The taxable income for 2021 is P2,400,000. The company expects to report taxable
income for the next five years
V. No temporary differences existed at the end of the 2020.
Required:
5. The deferred tax liability to be reported in Caroll’s statement of financial position at
December 31, 2021 is
6. The deferred tax asset to be reported in Caroll’s statement of financial position at
December 31, 2021 is
7. The amount of current income tax payable to be reported in Caroll’s statement of
financial position at December 31, 2021 is
8. Caroll’s pre-tax accounting income for 2021 is
9. Caroll’s net income for 2021 is
KAMPESCA, INC., n its first year of operations, has the following differences between carrying
value and tax base of its assets and liabilities at the end of 2021:
Carrying Value Tax Base

Equipment (net) P 800,000 P 680,000
Estimated warranty liability 400,000 0
Kampesca estimates that the warranty liability will be settled in 2022.
The difference in equipment (net) will result in taxable amounts as shown below:
Year Amount
2022 P 40,000
2023 60,000
2024 20,000
The company has taxable income of P1,040,000 for 2021. The income tax rate is 30%.
10. What is the amount of deferred tax liability should be reported in Kampesca’s statement
of financial position at December 31, 2021?
11. What amount of deferred tax asset should be reported in Kampesca’s statement of
financial position at December 31, 2021?
12. What is the amount of income tax payable (current) to be reported in Kampesca’s
statement of financial position at December 31, 2021?
13. What is the total income tax expense for 2021?
LIABILITY UNDER FINANCE LEASE

On December 31, 2020, LEMAN CO. signs a 10-year non-cancellable lease agreement to lease a
storage building from Storage Company. The following information pertains to this lease
agreement:
I. The agreement requires equal rental payments of P720,000 beginning on December 31,
2020.
II. The fair value of the building on December 31, 2020, is P4,400,000.
III. The building has an estimated economic life of 12 years, with an unguaranteed residual
value of P100,000. Leman depreciates similar buildings on the straight-line method.
IV. The lease is non-renewable. At the termination of the lease, the building reverts to the
lessor.
V. The interest rate implicit in the lease is 12% per year.
VI. The yearly rental payment includes P24,705 of executory costs related taxes on the
property.
The following present the value factors are for 10 periods at 12% annual interest rate:
Present value of an annuity due of 1 6.32825

Present value of an ordinary annuity of 1 5.65022
Present value of 1 0.32197
14. What amount should be included in the current liabilities section of Leman’s statement
of financial position of December 31, 2021??
15. What is the total leased-related expenses to be reported in Leman’s income statement
for the year ended December 31, 2021?

Deferred Income Tax Asset and Liability

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DEFERRED INCOME TAX ASSET AND LIABILITY 1

At December 31, 2019, GALILEE CORPORATION had a temporary difference (related to

II Rent collected in advance;

III Various expenses accrued

DEFERRED INCOME TAX ASSET AND LIABILITY 2

The following data pertain to the CARROLL COMPANY

III. The income tax rate is 30%.

DEFERRED INCOME TAX ASSET AND LIABILITY 3

Carrying Value Tax Base

Kampesca estimates that the warranty liability will be settled in 2022.

LIABILITY UNDER FINANCE LEASE

Present value of an annuity due of 1 6.32825

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