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Intermediate Accounting 3
Life Insurance 50% of business meals Deferred tax liability Estimates (estimated
Proceeds (if the and entertainment for - In depreciation product warranty cost
company is the tax purposes. expense when incurred or paid)
beneficiary) 100% of business - Tax - Warranty
meals and depreciation in expense
entertainment can be excess of book (Under financial
recorded in the books if depreciation reporting, it is
incurred in the normal (for example - recognized as
course of business. Accelerated an expense
Depreciation is when the
used for product is sold
taxation while while for
Straight-line taxation
method is used purposes it is
in financial deductible only
reporting) when actually
- on installment paid.)
sale
- Accounting
income is
higher than
taxable income
Interest income Fees and Licenses Differences in methods Allowance for bad debts
- on tax-exempt - Legal and used. For book
securities like professional purposes: equity
government fees which method of accounting
bonds, were not for investments when
municipal directly incurred equity income exceeds
bonds, treasury for trade/capital dividends declared
bills, tax- purposes. while for tax purposes:
exempt money income is recognized
market funds, when cash dividends is
health savings received
account
- bank deposits Recognition of equity-
method income for
example in the financial
statement there's a
debit in investment and
credit revenue but for
tax purposes
investment will be
debited and dividend
revenue will be credited
which will be converted
into cash in the future.
Gain from sale of Charitable contributions Interest and property Losses and tax credits
bonds, debentures, or in excess of tax taxes during that can be carried
other certificate of limitation construction (for book forward
indebtedness with a -corporate income tax purposes: taxes are
maturity of more than 5 payer - 5% of income capitalized; for taxation
years purposes: taxes during
construction is
deducted from taxable
income when paid)
Sickness and injury Expenses paid out in Completion method for Impairment loss
payment from an cash when they are long-term contracts in recognized in
employer-paid plan required to be paid progress accounting purposes
through banking (For book purposes: but ignored for tax
personnel Percentage-of- purposes until the asset
completion method; for is sold
income tax purposes:
completed-contract
method)
Gain on foreign Exploratory Cost - The The cost of a business Nonqualified deferred
exchange on a capital money you spend to combination that is compensation for key
transaction research business accounted for as an employees
opportunities you might acquisition is allocated
go into isn’t deductible. to the identifiable
Once you actually start assets and liabilities
a business, expenses acquired at fair value.
treated as start-up
costs can be deducted
in the first year within
certain limits.
Cash rebates on items Lobbying and other Accrued income Warranty costs,
you purchase from a political expenses - Income which compensation expense
retailer, manufacturer or has been for stock option plans
dealer. earned but not and loss on inventories
yet received in a later year
- Example is recognition differences.
Rent Income (for book purposes:
Receivable estimated in the current
year. For tax purposes:
deducted when paid)
Disability benefits from Impairment loss on An asset revalued Gains on sale and
a public welfare fund non-trade debts upwards and no leasebacks ( for
equivalent adjustment financial reporting: over
is made for tax the life of the lease
purposes. contract; for taxation: it
is taxed at the date of
sale)
- of certain types
of motor
vehicles like
yachts,
helicopters and
land vehicles
exceeding the
threshold ( only
one vehicle for
an official or
employee with
cost not
exceeding
P2,400,000)
are not allowed
to be deducted
An asset revalued
downward (Net
Realizable value of an
item of inventory, or the
recoverable amount of
an item of property,
plant and equipment
less than the previous
carrying amount)
Development Costs
Research costs
Amortization
Depletion