LECTURE

INCOME TAXES

Hà Nội, 2023
Copyright © 2019 - Trường Đại học Kinh tế Quốc dân 1
INSTRUCTOR INFORMATION

Full name: DANG THI THUY HANG, MB, Ph.D.

Address: Room 1114, 11th Floor, Building A1, NEU
Phone number: +84 915 166 150
Email: hangdt@neu.edu.vn
Faculty/Institute: School of Accounting and Auditing
Department: Financial Accounting

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 LEARNING OBJECTIVES

 Describe the fundamentals of accounting for income taxes.

 Identify additional issues in accounting for income taxes.
 Explain the accounting for loss carrybacks and loss carryforwards..
 Describe the presentation of deferred income taxes in financial
statements.

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 MAIN TOPICS

Fundamentals of Accounting for Income Taxes

Additional Issues

Accounting for Net Operating Losses

Financial Statement Presentation

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Fundamentals of Accounting for
Income Taxes

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Accounting for Income Taxes
Financial Statements Tax Return

vs.

Tax Authority

Pretax Financial Income  Taxable Income

IFRS Tax Law
Income Tax Expense  Income Taxes Payable
 FUNDAMENTAL CONCEPTS

• Pretax financial income is determined by accountants according to IFRS to

ensure the objective of providing useful information for investors and creditors.
It is a financial reporting term.

• Taxable income is determined by tax authorities according to Tax Law and used
to compute income taxes payable. It is a tax accounting term.

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 FUNDAMENTAL CONCEPTS

Income Taxes: Domestic and foreign federal (national), state, and local (including
franchise) taxes based on income.

Income Taxes: directly taxed on a corporate’s profit. All entities must pay income
tax for the governance (State) under Tax Regulations.

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 FUNDAMENTAL CONCEPTS

 Income Taxes Currently Payable (Refundable): Refer to current tax expense

(benefit).

 Deferred Tax Liability: The deferred tax consequences attributable to

taxable temporary differences.

 Deferred Tax Asset: The deferred tax consequences attributable to

deductible temporary differences and carryforwards.

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 FUNDAMENTAL CONCEPTS
Tax base of an asset or liability = amount attributed to that asset or liability
for tax purposes.
 * Tax Base Assets
 * Tax Base Liabilities
 Income Tax Expense (Benefit): The sum of current tax expense (benefit) and
deferred tax expense (benefit).
 Current Tax Expense (Benefit): The amount of income taxes paid or payable
(or refundable) for a year as determined by applying the provisions of the
enacted tax law to the taxable income or excess of deductions over revenues
for that year.
 Deferred Tax Expense (Benefit): The change during the year in a company's
deferred tax liabilities and assets.
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 TAX BASE ASSETS

1. An equipment has cost at VND360 millions, accumulated depreciation at

VND130 millions. Carrying amount of the equipment will be deducted in the
future by the depreciation or disposal. Revenues are generated by using this
equipment, as well as any gains from disposal, must be taxed; losses from
disposal of the equipment are deducted from tax purpose. Tax base of the
asset is VND230 millions.

2. Book value of an accounts receivable is VND100millions. Sales revenue

from this receivable, is added to taxable income. Tax base of this asset is
VND100 millions.

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 TAX BASE LIABILITIES

1. In the Current Liabilities section, there is an accrued expense of paid

leaves for VND150 millions. This liability is deducted for tax purpose when
employees leaving, and the company paid for them. So, tax base of the liability
is nil (0).

2. In the Current Liabilities section, there is an accrued expense of utilities

expenses for VND10 millions. This liability is deducted for tax purpose in the
current year. So, tax base of the liability is VND10 millions.

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 ACCOUNTING FOR INCOME TAX

M JSC. reported revenues of VND130 billions and expenses of VND

60 billions in each of its first 3 years of operations. For tax purpose,
M reported the same expenses to the tax authority in each of the
years at VND60 billions. However, M reported taxable revenues of
VND100 billions in 2019, VND150 billions in 2020 and VND140
billions in 2021. What is the effect on the accounts of reporting
different amounts of revenue for accounting versus tax?

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 ACCOUNTING FOR INCOME TAX
Unit: VND billions
IFRS Reporting 2019 2020 2021 Total

Revenues 130 130 130 390

Expenses 60 60 60 180
Pretax financial income 70 70
70 210

Income tax expense (40%) 28 28

28 84

Tax Reporting 2019 2020 2021 Total

Revenues 100 150 140 390

Expenses 60 60 60 180
Taxable income 40 90 80 210

Income tax payable (40%) 16 32

36 84
 ACCOUNTING FOR INCOME TAX
Unit: VND billions
Comparison of Differences 2019 2020 2021 Total

Income tax expense (IFRS) 28 28 28 84

Income tax payable (Tax Law) 16 36

32 84

Difference
12 8 4 0

Are the differences accounted for in the financial statements? Yes

Year Reporting Requirement

2019
2020
2021
 FINANCIAL REPORTING FOR 2019

Statement of Financial Position Statement of Profit or Loss

2019 2019
Assets:
Revenues:

Expenses:
Liabilities:
Deferred taxes
Income taxes payable
Income tax expense
Equity:
Net income (Loss)
DEFERRED INCOME TAXES

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DETERMINATION OF DEFERRED INCOME TAXES

Tax base

Temporary difference

Deferred tax liability

Deferred tax asset

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 TEMPORARY DIFFERENCE
The difference between the tax basis of an asset or liability and its
reported (carrying or book) amount in the financial statements that will
result in taxable amounts or deductible amounts in future years.

Future Taxable Amounts Future Deductible Amounts

• Taxable amounts increase • Deductible amounts

taxable income in future decrease taxable income in
years. future years.
• Book value > Tax base of an • Book value < Tax base of an
asset; asset;
• Book value < Tax base of a • Book value > Tax base of a
liability; liability;
 DEFERRED INCOME TAX

Temporary difference will result in deferred tax liability or deferred tax asset.

Deferred Tax Liability Deferred Tax Asset

Deferred Tax Liability represents Deferred Tax Asset represents the

the increase in taxes payable in increase in taxes refundable (or saved) in
future years as a result of taxable future years as a result of deductible
temporary differences existing at temporary differences existing at the end
the end of the current year. of the current year.
 Temporary Differences
Revenues or gains are taxable after they are
recognized in financial income – DTL
An asset (e.g., accounts receivable or investment) may be recognized for revenues or gains
that will result in taxable amounts in future years when the asset is recovered.
Examples:
1. Sales accounted for on the accrual basis for financial reporting purposes and on the
installment (cash) basis for tax purposes.
2. Contracts accounted for under the percentage-of-completion method for financial
reporting purposes and a portion of related gross profit deferred for tax purposes.
3. Investments accounted for under the equity method for financial reporting purposes and
under the cost method for tax purposes.
4. Gain on involuntary conversion of non-monetary asset which is recognized for financial
reporting purposes but deferred for tax purposes.
5. Unrealized holding gains for financial reporting purposes (including use of the fair value
option) but deferred for tax purposes.
 Temporary Differences

Expenses or losses are deductible after they are

recognized in financial income - DTA
A liability (or contra asset) may be recognized for expenses or losses that will
result in deductible amounts in future years (deferred tax assets) when the
liability is settled.
Examples:
1. Product warranty liabilities.
2. Estimated liabilities related to discontinued operations or restructurings.
3. Litigation accruals.
4. Bad debt expense recognized using the allowance method for financial reporting
purposes; direct write-off method used for tax purposes.
5. Share-based compensation expense (Stock option expense).
6. Unrealized holding losses for financial reporting purposes (including use of the fair
value option) but deferred for tax purposes.
 Temporary Differences

Revenues or gains are taxable before they are

recognized in financial income – DTA

A liability may be recognized for an advance payment for goods or services

to be provided or performed in future years that settle the liability will
result in deductible amounts in future years.
Examples:
1. Subscriptions received in advance.
2. Advance rental receipts.
3. Sales and leasebacks for financial reporting purposes (income deferral) but
reported as sales for tax purposes.
4. Prepaid contracts and royalties received in advance.
 Temporary Differences

Expenses or losses are deductible before they are

recognized in financial income - DTL

The cost of an asset may have been deducted for tax purposes faster than it
was expensed for financial reporting purposes result in taxable amounts
in future years.
Examples:
1. Depreciable property, depletable resources, and intangibles.
2. Deductible pension funding exceeding expense.
3. Prepaid expenses that are deducted on the tax return in the period paid.
4. Development costs that are deducted on the tax return in the period paid.
 Illustration
A company estimated its warranty costs related to the sales its
products to be $5,000. For tax purposes, the warranty tax deduction
is not allowed until paid. Therefore, there is a temporary difference
$5000. Tax rate is 20%.
What are the types of the temporary difference and the
deferred income tax?
 Permanent Differences

Permanent differences affect only the period in which they occur,

they do not give rise to future taxable or deductible amounts. As a result,
companies recognize no deferred tax consequences.

1. Enter into pretax financial income but never into

taxable income
2. Enter into taxable income but never into pretax
financial income.
 Permanent Differences

Items are recognized for financial reporting purposes

but not for tax purposes.

1. Interest received on certain types of government obligations.

2. Expenses incurred in obtaining tax-exempt income.
3. Fines and expenses resulting from a violation of law.
4. Charitable donations recognized as expense but sometimes not
deductible for tax purposes.
 Permanent Differences

Items are recognized for tax purposes but not for

financial reporting purposes.

1. “Percentage depletion” of natural resources in excess of their cost.

2. The deduction for dividends received from other companies,
sometimes considered tax-exempt.
 Illustration
In M JSC. situation, the only difference between the book basis and tax basis of
the assets and liabilities relates to accounts receivable that arose from revenue
recognized for book purposes (IFRS). M reports accounts receivable at VND 30
billions in the December 31, 2019, statement of financial position. However, the
receivables have a zero-tax basis.
Unit: Billions

Per books 31/12/2019 Per Tax 31/12/2019

Accounts receivable 30 Accounts receivable 0

 Illustration
Computation of Deferred Tax Liability, end of 2019

Book basis of accounts receivable

Tax basis of accounts receivable
Cumulative temporary difference at the end of 2019
Tax rate

Deferred tax liability at the end of 2019

 Illustration

Schedule of Future Taxable Amounts

2020 2021 Total

Future taxable amounts
Tax rate

Deferred tax liability at the end of 2019

 Illustration
Bởi vì Because it is the first year of operations for M JSC., there is no
deferred tax liability at the beginning of the year. M computes the income
tax expense for 2019.
Computation of Income Tax Expense, 2019

Deferred tax liability at end of 2019

Deferred tax liability at beginning of 2019
Deferred tax expense for 2019
Current tax expense for 2019 (income taxes payable)
Income tax expense (total) for 2019
 Illustration

M JSC. makes the following entry at the end of 2019sau:

 Illustration
At the end of 2020 (the second year), the difference between the book
basis and the tax basis of the accounts receivable is $10,000.

Computation of Income Tax Expense, 2020

Deferred tax liability at end of 2020

Deferred tax liability at beginning of 2020
Deferred tax expense (benefit) for 2020
Current tax expense for 2020 (income taxes payable)
Income tax expense (total) for 2020
 Illustration
M JSC. makes the following entry at the end of 2020:
 Illustration
Statement of Financial Position Presentation, Deferred Tax Liabilities

Year-end Income taxes payable Deferred tax liability

2019

2020
2021
Accounting for Net Operating Losses

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 Accounting for Net Operating Losses

o Companies may have profits or losses.

o In the early years or when a company has to face with some difficulty events, that
can cause expenses over revenues Net operating loss.
 A net operating loss (NOL) occurs for tax purposes in a year when tax-deductible
expenses exceed taxable revenues.
 Accounting for Net Operating Losses

It is unequal if companies were taxed during profitable periods without receiving any
tax relief during periods of net operating losses.
Under certain circumstances, therefore, tax laws permit taxpayers to use the
losses of one year to offset the profits of other years.
A company pays no income taxes for a year in which it incurs a net operating loss, and
it may select one of the two options:
➢ loss carryback , or
➢ loss carryforward.
 Accounting for Net Operating Losses (Loss carryback)

 A company may carry the net operating loss back two years and receive refunds for
income taxes paid in those years.
 Any loss remaining after the two-year carryback may carry forward up to 20 years to
offset future taxable income.
EXAMPLE: An Nam Co. has no temporary differences, income taxes as below:

Year Taxable Income/Loss Tax rate Income tax paid

2018 $50,000 35% $17,500

2019 100,000 30% 30,000
2020 200,000 40% 80,000
2021 (500,000) - -0-
 Accounting for Net Operating Losses (Loss carryback)

o EXAMPLE: An Nam Co.

o The taxable loss in 2021 (current year) will offset with the taxable incomes of the 2
100000+200000=300000
previous years (2020 and 2019) :
➢ Tax returns: 30000+80000=110000

An Nam Co. makes the following journal entry for 2021:

Income Tax Refund Receivable 110000

Benefit Due to Loss Carryback (Income Tax Expense) 110000

 Accounting for Net Operating Losses (Loss carryforward)

o The remaining loss will carryforward up to 20 years.

o EXAMPLE: An Nam Co.
➢ The loss of $500,000 carrybacks with the profits of the 2 past years, is………..
300000

The remaining loss …………….carryforwards

200000 to next years.
➢ Assume that tax rate is 40% for the next years, deductible income tax amount:
200000*40%=80000
 Accounting for Net Operating Losses(Loss carryforward)

o EXAMPLE: An Nam Co.

An Nam Co. makes the following journal entry for 2021:

Income Tax Refund Receivable 110000

Benefit Due to Loss Carryback (Income Tax Expense) 110000

Deferred Tax Asset 80000

Benefit Due to Loss Carryforward (Income Tax Expense) 80000

Accounting for Net Operating Losses(Loss carryforward)

An Nam Co.
STATEMENT OF POROFIT OR LOSS
FOR 2021
Operating loss before income taxes ($500,000)
Income tax benefit
Benefit due to loss carryback 110000

Benefit due to loss carryforward 80000 190000

Net Loss
 Accounting for Net Operating Losses (Loss carryforward)

EXAMPLE: In 2022, An Nam Co. has taxable income of $250,000, tax rate is 40%.

Taxable income prior to loss carryforward $250,000

Loss carryforward deduction (2021) 200000

Taxable income for 2022 50000

Tax rate 40%

Income taxes payable for 2022 20000

 Accounting for Net Operating Losses (Loss carryforward)

o EXAMPLE: An Nam Co.

An Nam Co. makes the following journal entry for 2022:

Income tax expense. 100000

Defered tax asset. 80000
current tax payable 20000
Accounting for Net Operating Losses (Loss carryforward)

An Nam Co.
STATEMENT OF POROFIT OR LOSS
FOR 2022
Income before income taxes $250,000
Income tax expense
Current
Deferred
Net Income
Presentation of Deferred Income
Taxes in Financial Statements

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 Financial Statement Presentation

Statement of Financial Position

NON-CURRENT ASSETS STOCKHOLDERS’ EQUITY
Deferred tax asset (DTA) xxx

CURRENT ASSETS NON-CURRENT LIABILITIES

Income Tax Refund Receivable x Deferred tax liability (DTL) xx

CURRENT LIABILITIES
Income Tax Payable xxxx
 Financial Statement Presentation

Statement of Profit or Loss

Income before income taxes xxxxx

Income tax expense

Current 61

Deferred (39) 22

Net Income xxxx

 Note Disclosure
 Companies are required to disclose the total of all deferred tax liabilities, the total of
all deferred assets, and the total valuation allowance in the notes to the financial
statements.
 In addition, companies should disclose
* any change during the year in the total valuation allowance, and
* the types of temporary differences or carryforwards that give rise to
significant portions of deferred tax liabilities and assets.
ĐẶC ĐIỂM KẾ TOÁN VIỆT NAM

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 KẾ TOÁN TÀI SẢN THUẾ THU NHẬP HOÃN LẠI

 Tài khoản sử dụng

TK 243 – Tài sản thuế thu nhập hoãn lại

Dư Nợ:
Giá trị TS thuế thu nhập hoãn
lại còn lại cuối kỳ
 KẾ TOÁN TÀI SẢN THUẾ THU NHẬP HOÃN LẠI

 Cuối năm, kế toán căn cứ “Bảng xác định thuế thu nhập hoãn lại”, ghi:
➢ Nếu tài sản thuế thu nhập hoãn lại phát sinh trong năm > tài sản thuế thu nhập hoãn
lại được hoàn nhập trong năm, kế toán ghi nhận bổ sung phần chênh lệch:
Nợ TK 243 - Tài sản thuế thu nhập hoãn lại
Có TK 8212 – Chi phí thuế TNDN hoãn lại
➢ Nếu tài sản thuế thu nhập hoãn lại phát sinh trong năm < tài sản thuế thu nhập hoãn
lại được hoàn nhập trong năm, kế toán ghi giảm phần chênh lệch:
Nợ TK 8212 - Chi phí thuế TNDN hoãn lại
Có TK 243 - Tài sản thuế thu nhập hoãn lại
 KẾ TOÁN THUẾ THU NHẬP HOÃN LẠI PHẢI TRẢ

 Tài khoản sử dụng

TK 347 – Thuế thu nhập hoãn lại phải trả

Dư Có:
Giá trị TS thuế thu nhập hoãn
lại còn lại cuối kỳ
 KẾ TOÁN THUẾ THU NHẬP HOÃN LẠI PHẢI TRẢ

 Cuối năm, kế toán căn cứ “Bảng xác định thuế thu nhập hoãn lại phải trả”, ghi:
➢ Nếu số thuế TNDN hoãn lại phải trả phát sinh trong năm > số thuế TNDN hoãn lại
phải trả được hoàn nhập trong năm, kế toán tăng phần chênh lệch:
Nợ TK 8212: Chi phí thuế TNDN hoãn lại
Có TK 347: Thuế thu nhập hoãn lại phải trả
➢ Nếu số thuế thu nhập hoãn lại phải trả phát sinh trong năm < số thuế thu nhập hoãn lại
phải trả được hoàn nhập trong năm, kế toán giảm phần chênh lệch :
Nợ TK 347 : Thuế thu nhập hoãn lại phải trả
Có TK 8212: Chi phí thuế TNDN hoãn lại
DISCUSSION

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