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C and J Company commenced operations on January 1, 20x7. It purchased a machine for P200,000. The machine is being depreciated on a straight-line basis
C and J Company commenced operations on January 1, 20x7. It purchased a machine for P200,000.
The machine is being depreciated on a straight-line basis over 5 years, for income tax purposes
under the double declining balance method. The company capitalizes produce development
expenditure in the amount of P120,000 in accordance with PAS 38 Intangible assets, for income tax
purposes, such expenditure is claimed in the year it is incurred. For the year ended December 31,
20x7, the company made a profit before income tax of P500,000. This profit was after deducting
personal allowance for bad debts of P50,000 and provision for warranties of P80,000. At year end,
the balance in the gross trade receivable account was P300,000. For income tax purposes, bad
debts and warranty costs are claimed when incurred or paid. Income tax rate is 32%.
5. What amount of deferred tax asset should the company recognized on December 31, 20x7?
6. What amount of deferred tax liability should the company recognized on December 31, 20x7?
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