Problem 1 - Deferred Tax Assets and Liabilities, single tax rate Crispy Crme had financial income before income tax of P1,000,000 for the year ended December 31, 20A1. It has income items exempt from income tax of P200,000 and non- deductible expenses of P100,000. The partial statement of financial position of Crispy Crme as of December 31, 20A1 is as follows: (showing assets and liabilities which may have temporary differences): Assets: Liabilities: Machinery P500,000 Provisions for losses P225,000 Accumulated Depreciation (200,000) Accumulated Impairment (90,000) P210,000 Investment Property P600,000 . . The following are the additional information concerning the tax bases of the above items: Machinery - this asset was depreciated for 5 years both for income tax and financial accounting purposes. It was tested for impairment on December 31, 20A1. The asset had a remaining economic life of 3 years. No impairment loss was recognized in prior years. Investment Property - this pertains to a land which is held for lease. It is valued at fair value under IAS 40. The asset was acquired on January 1, 20A0 for P400,000. The fair value increased by P125,000 for the year ended December 31, 20A1. The asset is expected to be sold at the end of 10 years. Said expectation was determined at the time of acquisition. Provision for losses this pertains to potential losses that was recognized in 2040 at P150,000 with the expectation that it will be settled in 20A3. However, additional provision of P75,000 was recognized during 20A1. The entity still expects to settle this obligation in 20A3. The impact of discounting was ignored since it is not material. The entity adopts the calendar year accounting period and the enacted income tax rate is 30%. The carrying amount of the entity's deferred tax asset (net) as of January 1, 20A1 was P22,500. Crispy Crme paid quarterly income tax during 20A1 of P100,000 which can be credited against its annual income tax liability. The annual income tax is payable every April 15 of the subsequent year. It is also probable that the entity will be able to realize taxable income in the future. Required: 1. Show how the balance of Crispy Crme's net deferred tax asset (liability) as of January 1, 20A1 of P22,500 was calculated. Show the carrying amounts and tax bases of the related assets and liabilities. 2. Compute the balance of the net deferred tax asset (liability) as of December 31, 20A1. Show the carrying amounts and tax bases of the related assets and liabilities. 3. Compute Crispy Crme's taxable income (loss) for the year ended December 31, 20A1. 4. Prepare the journal entries to record the income taxes for 20A1. 5. Prepare a partial income statement for Crispy Crme beginning with "Income before income taxes" for the year ended December 31, 20A1. 6. Prepare an explanation of the relationship between tax expense (income) and accounting profit in both of the following forms: a. Numerical reconciliation between tax expense (income) and the product of accounting profit multiplied by the applicable tax rate(s) b. A numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed Problem 1 - Deferred Tax Assets and Liabilities, single tax rate Crispy Crme had financial income before income tax of P1,000,000 for the year ended December 31, 20A1. It has income items exempt from income tax of P200,000 and non- deductible expenses of P100,000. The partial statement of financial position of Crispy Crme as of December 31, 20A1 is as follows: (showing assets and liabilities which may have temporary differences): Assets: Liabilities: Machinery P500,000 Provisions for losses P225,000 Accumulated Depreciation (200,000) Accumulated Impairment (90,000) P210,000 Investment Property P600,000 . . The following are the additional information concerning the tax bases of the above items: Machinery - this asset was depreciated for 5 years both for income tax and financial accounting purposes. It was tested for impairment on December 31, 20A1. The asset had a remaining economic life of 3 years. No impairment loss was recognized in prior years. Investment Property - this pertains to a land which is held for lease. It is valued at fair value under IAS 40. The asset was acquired on January 1, 20A0 for P400,000. The fair value increased by P125,000 for the year ended December 31, 20A1. The asset is expected to be sold at the end of 10 years. Said expectation was determined at the time of acquisition. Provision for losses this pertains to potential losses that was recognized in 2040 at P150,000 with the expectation that it will be settled in 20A3. However, additional provision of P75,000 was recognized during 20A1. The entity still expects to settle this obligation in 20A3. The impact of discounting was ignored since it is not material. The entity adopts the calendar year accounting period and the enacted income tax rate is 30%. The carrying amount of the entity's deferred tax asset (net) as of January 1, 20A1 was P22,500. Crispy Crme paid quarterly income tax during 20A1 of P100,000 which can be credited against its annual income tax liability. The annual income tax is payable every April 15 of the subsequent year. It is also probable that the entity will be able to realize taxable income in the future. Required: 1. Show how the balance of Crispy Crme's net deferred tax asset (liability) as of January 1, 20A1 of P22,500 was calculated. Show the carrying amounts and tax bases of the related assets and liabilities. 2. Compute the balance of the net deferred tax asset (liability) as of December 31, 20A1. Show the carrying amounts and tax bases of the related assets and liabilities. 3. Compute Crispy Crme's taxable income (loss) for the year ended December 31, 20A1. 4. Prepare the journal entries to record the income taxes for 20A1. 5. Prepare a partial income statement for Crispy Crme beginning with "Income before income taxes" for the year ended December 31, 20A1. 6. Prepare an explanation of the relationship between tax expense (income) and accounting profit in both of the following forms: a. Numerical reconciliation between tax expense (income) and the product of accounting profit multiplied by the applicable tax rate(s) b. A numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed