CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS
BATCH 96 OCTOBER 2024 LECPA
DEFERRED INCOME TAX
1. An entity reported pretax financial income of P8,000,000 for the current year. The taxable income
was P7,000,000 for the current year. The difference is due to accelerated depreciation for income tax
purposes. The income tax rate is 25% and the entity made estimated tax payment of P500,000 during
the current year.
I. The current tax expense is equal to taxable income multiplied by tax rate.
II. Deferred tax liability is the amount of income tax payable in future periods with respect to taxable
temporary difference or future taxable amount which arises when accounting income subject to
tax is higher than taxable income.
III. The current tax expense is P1,750,000
IV. The deferred tax liability is P250,000
A. All statements are true
B. All statements are not true
C. Only three statements are true
D. Only two statements are true
2. An entity reported pretax accounting income of P5,000,000 for the current year. The taxable income
was P5,500,000. The difference is due to rental received in advance.
Rental income is taxable when received. The income tax rate is 25% and the entity made no estimated
tax payment in the current year.
I. The total tax expense is equal to accounting income subject to tax multiplied by tax rate.
II. Deferred tax asset is the amount recoverable in future periods with respect to deductible
temporary difference or future deductible amount which arises when taxable income is higher
than accounting income subject to tax
III. The total tax expense is P1,250,000
IV. The deferred tax asset is P125,000
A. All statements are true
B. All statements are not true
C. Only three statements are true
D. Only two statements are true
3. An entity reported pretax accounting income of P6,000,000 during 2024, the first year of operations.
The entity made estimated payment of income tax of P900,000 during 2024. The 2024 tax rate is
30% and the enacted tax rate for 2025 and future years is 25%.
Tax return Accounting record
Tax-exempt interest revenue 500,000
Uncollectible accounts expense 200,000 300,000
Depreciation expense 1,600,000 1,000,000
I. The deferred tax asset is P25,000
II. The deferred tax liability is P150,000
III. The current tax expense is P1,500,000
IV. The total tax expense is P1,650,000
A. All statements are true
B. All statements are not true
C. Only three statements are true
D. Only two statements are true
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4. An entity reported in 2024, the first year of operations pretax financial income of P5,000,000
Tax return Accounting record
Premium on officers’ life insurance 0 150,000
Payment of tax penalty 0 250,000
Uncollectible accounts expense 200,000 600,000
Depreciation expense 1,200,000 1,000,000
Warranty cost 300,000 900,000
Rent received in advance 500,000 0
Income tax rate 25%
I. The current tax expense is P1,675,000
II. The total tax expense is P1,350,000
III. The deferred tax asset is P375,000
IV. The deferred tax liability is P50,000
A. All statements are true
B. All statements are not true
C. Only three statements are true
D. Only two statements are true
5. An entity reported the following information after the first year of operations:
Income before income tax 5,400,000
Income tax expense
Current 1,250,000
Deferred 100,000 1,350,000
Net income 4,050,000
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
P1,600,000. No other differences existed between book income and taxable income except for the
depreciation. The tax rate is 25%.
I. The amount deducted for depreciation in the tax return is P2,000,000.
II. The taxable income is P5,000,000
A. Statements I and II are true
B. Statements I and II are not true
C. Only statement I is true
D. Only statement II is true
6. An entity reported the following assets and liabilities at year-end:
Carrying amount Tax base
Machinery 1,650,000 1,250,000
Accounts receivable 1,500,000 1,750,000
Deposits received in advance 150,000 0
Provision for warranty 500,000 0
Income tax rate 25%
I. The deferred tax liability is P100,000
II. The deferred tax asset is P225,000
A. Statements I and II are true
B. Statements I and II are not true
C. Only statement I is true
D. Only statement II is true
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