CASE 17

Your audit engagement team is in the process finalizing the audit of Vamp Inc.'s financial statement for 2018. You were task to audit the income taxes and deferred taxes of the entity. The following procedures were deemed necessary to be performed in finalizing the audited figures in the entity's financial statements:

The following items were available from the entity's December 31, 2018 trial balance:

Deferred tax asset P 42,000

Deferred tax liability 36,000

Tax expense - current 900,000

Tax expense - deferred-0-

Income tax liability 300,000

After inquiring with the management and performing the appropriate audit procedures, you discovered the following:

Note 1 -- Deferred Taxes

The entity has been recognizing deferred taxes related to its accrued commission income and allowance for uncollectible accounts. However, the entity failed to update the balances of the related deferred tax asset and liability account as of year-end.

The accrued commission income had a balance of P120,000 at the beginning of the year which was collected and taxable in 2018. At the end of 2018, the entity had accrued commission income of P170,000.

The allowance for doubtful accounts had a beginning balance of P140,000 and an ending balance of P100,000. The movement was accounted for as follows: accounts written off - P80,000; impairment loss/doubtful accounts expense recognized - -- P40,000.

Note 2 -- Income Taxes

The entity paid P600,000 worth of income taxes for the first three quarters. The figure reported under "tax expense- current" was based on the adjusted income before tax of P3,000,000. The entity failed to consider the effects of temporary and permanent differences in the said computation.

Dividend was received from one of its equity investments which amounted to P200,000. This item is not subject to tax per existing tax laws.

The entity failed to comply with some regulatory requirements of the Securities and Exchange Commission and the Bureau of Internal Revenue which resulted to an amount of P700,000 recognized as fines and penalties. This amount is not considered necessary for the operations of the business, thus, not allowed to be deducted in computing the taxable income.

The entity incurred P1,500,000 worth of representation and entertainment expenses which was reported as one of the major expense items. However, per existing tax laws, the maximum allowable amount allowed to be deducted or income tax expenses was limited to P1,000,000 only.

Determine the following:

1. Total future taxable amount in 2018:

2. Total future deductible amount in 2018:

3. How much is the balance of deferred tax asset at the end of 2018?

4. How much is the balance of deferred tax liability at the end of 2018?

5. How much is the current far expense?

6. How much is the total tax expense?

7. How much is the taxable income in 2018?

8. How much is the total liabilities in financial statement related to the above transactions?

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