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9.0. Analyzing of Income Taxes - Coggle Diagram
9.0. Analyzing of Income Taxes
Distinguish between FS and Tax report
Tax return Terminology
Taxable income
: Income subject to tax based on tax return
Doanh thu chịu thuế
Taxes payable (current tax expense)
: Tax return liability resulting from taxable income
Số thuế phải đóng
Income tax paid
: Actual cash flows for income taxes, including payments/refunds from other years => dòng tiền đã thực trả cho thuế của công ty
Tax loss carryforward
: Current or past loss used to reduce future taxable income => lỗ năm cũ được trừ vào thuế hiện tại
Tax base
: Net amount of an sset or liability used for tax reporting purposes => tài sản được báo cáo trong BÁO CÁO THUẾ dùng để tính thuế
Financial Reporting Terminology
Accounting profit
: Income before tax
Income tax expense
: Expense recognized the IS that includes taxes payables and changes in deferred tax assets and liabilities
*Deferred tax liabilities
: Nợ thuế thu nhập hoãn lại
Deferred tax assets
: Tài sản thuế thu nhập hoãn lại
Valuation allowance
: reduction of deferred tax assets based on the likelihood the asset will not be realized
Carrying value
: Net BS value of asset liability
Permanent difference
: Difference between
taxable income and pretax income
that will
not
reverse in future
Temporary difference
: Difference between tax base and the carrying value of an asset or liabilities that will result in either taxable amounts or deductible amounts in the future
Tax losses:
Tax credit
Reason:
The timing of revenue and expense recognition
Certain revenues and expenses are recognized in the IS but
never
on the tax return or vice-versa
Different in carrying amounts and tax bases for assets/liabilities
Gain/loss recognition differs
Tax losses from prior periods may
offset future taxable income
FS adjustments may
not affect
the tax return or may be recognized in different periods
Deferred tax assets and liabilities
Deferred tax asset
Created when
IS approach: Tax payable (tax return) > Income tax expense (IS) due to temporary differences
BS approach:
Asset: CA < tax base
Liability: CA > tax base
Occurrence
Revenues (or gains) are taxable before they are recognized in the IS
Expenses (or losses) are recognized in the IS before they are tax deductible
Tax loss carryforwards are available to reduce future taxable income
Treatment
Expected to reverse through future operation
Future tax saving
Deferred tax liabilities
Created when
IS approach: Income tax expense (IS) > Taxes payable (tax return) due to temporary differences
BS approach:
Asset: CA > tax base
Liability: CA < tax base
Occurrence
Revenues (or gains) are recognized in the IS before they are included on the tax return
Expenses (or losses) are tax deductible before they are recognized in the IS
Treatment
Expected to reverse through future operation
Future tax outflow
If DTL isn't expected to reverse int he future, they are best classified as equity (DTL decreased and euiqty increased by the same amount)
Calculation
Income tax payable = Taxable income x Tax rate
Income tax expense = Taxes payable - change of DTL - change of DTA
Deferred tax liability = (EBT - Taxable incoem) x tax rate
Deferred tax asset = (Taxable income - EBT) x tax rate
Tax base of a company's assets and liabilities
Tax base of assets
Is the amount that will be deducted (expensed) on the tax return in the future as the economic benefits of the assets are relized
Tax base of liabilities
Is the CA of liabilities - amounts that will be deductible on the tax return in the future.
Tax base of revenue received in advance is the CA - amount of revenue that will not be taxed in the future
Temporary & Permanent difference
Permanent difference
Definition
Difference betwwen taxable income and pretax income that will not reverse in the future
=>
not create DTL / DTA
Occurrence
Income or expense items
not allowed
by the tax legislation
Tax credits for some expenditures that directly reduce taxes
Temporary difference
Definition
Difference between the tax base and the CA of an asset or liability that will result in taxable amounts or deductible amounts in the future.
=>
creaste DTA / DTL
Occurrence
Revenue/expense item is recognized for both tax and reporting purpose
Difference methods are used in tax reporting and financial reporting
Coi vở P. 59 và SLIDE P.198 để bk sao xuất hiện Temporary difference theo method
Recognition and measurement of current and deferred tax items
DTA are assessed to determine the likelihood of sufficient future taxable income to recover the tax assets
=>
Solution:
DTA must be reduced by a
Valuation allowance
(contra account reduces DTA**
=> manipulate earnings by changing the valuation allowance
The applicabel tax rate will depend on how the temporary difference will be settled
=>
Solution:
Unrealized gains on an asset taxed at the capital gains rate when disposed and calculated DTL
Change in asset value if taken directly to equity
= >
Solution:
DTA, DTL: not affected, should also be taken directly to equity
The effective tax rate Reconciliation (đối chiếu)
Reason for the difference
Different tax eates in different tax jurisdictions (khu vực pháp lý) (countries)
Permanent tax differences: tax credits, tax-exempt incoem, nondeductible expenses, and tax differences between capital gains and operating income
Changes in tax rates and legislation
Deferred taxed provided on the reinvested earnings of foreign and unconsolidated (chưa hợp nhất) domestic affiliates (chi nhánh)
Tax holidays in some countries
Definition
Cash Tax rate
: The tax paid in cash that period (cash tax) divided by pre-tax income
Staturory tax rate
: The firm income tax rate in the country in which the firm is domiciled
Effective tax rate
: Derived from IS:
Effective tax rate = Income tax expense/pretax income
Tax rate changes impact on FS and ratios
Tax rate increase
Increase
DTA /DTL
Tax expense
Tax payable
Decrease
Net income
Shareholders' equity
Díclosures
DTLs, DTAs, any valuation allowance, and the net change in the valuation allowance over the period
Any unrecognized DTL for undistributed earnings of subsidiaries and joint ventures
Current-year tax effect of each type of temporary difference
Components of income tax expense
Reconciliation of reported income tax expense and the tax expense based on the statutory rate
Tax loss carryforwards and credits