How to account for and calculate Deferred Income Tax payable

What is deferred income tax, causes and effects. Instructions on how to account for deferred corporate income tax, how to calculate deferred corporate income tax payable.

In the process of working, we have heard more or less about deferred income tax (deferred corporate income tax), but do people know what deferred income tax is? How to account for this type of tax? So Online Accounting will learn with you about deferred income tax.

I. What is deferred income tax? Causes and effects

1. What is deferred income tax?

Deferred income tax (TNHL) is the future income tax that a business must pay. This amount will be calculated based on the temporary difference subject to corporate income tax in the current year.

2. Causes of influence

Deferred income tax arises for many different reasons, but mainly comes from the following two main factors:

• Payment of liabilities;
• Asset recovery.

Due to these two factors, the enterprise in the future will have to pay less or more corporate income tax than the corporate income tax payable in the year. Even though it does not affect the total corporate income tax in the year, the enterprise still has to record it.

>> See details: Causes of deferred corporate income tax.

II. Basis for calculating deferred corporate income tax

1. Deferred income tax assets arising from deductible temporary differences:

2. TNHL tax assets arising from the deductible value carried forward to the following year of unused tax losses:

3. TNHL tax assets arising from unused tax incentives:

III. How to calculate deferred income tax payable

The formula for calculating deferred income tax payable is as follows:

Note:

• If this year the amount of corporate income tax payable decreases, it will be offset against the corporate income tax recorded from previous years;
• In case the amount of corporate income tax payable to be refunded in the year is less than the amount of corporate income tax incurred to be paid, this difference is recorded as an increase in deferred corporate income tax expense and added to the amount of corporate income tax payable;
• In case the amount of corporate income tax payable to be refunded is greater than the amount of corporate income tax payable in the year, this difference will be recorded as a reduction in deferred corporate income tax expense and a reduction in deferred corporate income tax payable.

>> See details: How to calculate deferred corporate income tax payable.

IV. How to account for deferred corporate income tax

1. Principles of accounting for deferred income tax

• Pursuant to Accounting Standard No. 17 – Corporate income tax;
• At the end of the period, transfer the difference between the debit and credit side of account 8212 – “Deferred corporate income tax expense” to account 911 – “Determination of business results”;
• Account 243 is the account that records the TNHL tax assets.

Note:

It is not permitted to reflect in this account the tax assets or the tax liabilities arising from transactions recorded directly in equity.

>> See more: Some notes when accounting for deferred income tax.

2. How to account for deferred income tax

In case the corporate income tax assets arising in the year are greater than the corporate income tax assets being reversed in the year

Let a be the difference between the amount of corporate income tax assets arising and the amount refunded in the year.

Accounting: 

Debit account 243: a;

There is account 8212: a.

In case the corporate income tax assets arising in the year are less than the corporate income tax assets being reversed in the year

Let a be the difference between the amount of corporate income tax assets arising and the amount refunded in the year.

Accounting: 

Debit account 8212: a;

There is account 243: a.

For example:

At fdiinvietnam.com company, there is a business performance report as follows:

In year N, fdiinvietnam.com company deducted an expense of 5,000, but did not have enough documents and vouchers. In year N + 1, this expense had enough documents and vouchers, so in year N, the business results table is as follows:

The difference in costs decreased due to the provision of unrecognized costs, so the profit before corporate income tax increased, so the corporate income tax according to tax law will be higher than according to accounting law. Year N + 1 has the following business results table:

Year N + 1	According to accounting law	According to tax law	Difference
Revenue	250.000	250.000
Expense	180.000	185.000	-5.000
Profit before corporate income tax	70.000	65.000
Corporate Income Tax	14.000	13.000	1.000

The difference in increased costs due to the pre-accrued costs of year N has been recorded, thus reducing the profit before corporate income tax. Therefore, corporate income tax according to tax law will be lower than according to accounting law.

Thus, in year N, accountants need to record a temporary reduction in corporate income tax on the income statement, which will then be recorded as an increase in year N + 1. This is the enterprise’s deferred income tax and is accounted for as follows:

➤ Year N:

Debit account 243: 1,000;

Credit account 8212: 1,000.

➤ Year N + 1:

Debit account 8212: 1,000;

Credit account 243: 1,000.

V. Frequently asked questions about how to account for deferred corporate income tax

1. What factors are used to determine the amount of corporate income tax payable?

Determining the amount of corporate income tax is based on the deduction of corporate income tax expense arising from the following two factors:

• Record TNHL tax assets during the year;
• Reversal of corporate income tax payable recorded from previous years.

2. How to handle the corporate income tax arising from the retrospective application of accounting policies due to material errors from previous years?

Temporary tax arises due to the retrospective application of accounting policies due to material errors from previous years that give rise to temporary taxable differences. In this case, the accountant records additional deferred corporate income tax payable for previous years by reducing the opening balance of a specific account.