What Is Deferred Tax Liability?

Deferred income tax is when there is a time difference between the taxable income of the joint venture and the total accounting profit. In order to adjust the accounting difference, the income tax can be accrued as the total book profit and listed as total profit. The difference between the two is the deferred income tax. According to this accounting method, the joint venture needs to set up a "deferred income tax" account for accounting purposes. After the time difference has completely disappeared by itself, the balance of the undergraduate project will also be zero. ^[1]

Deferred income tax

Deferred income tax, divided into accounting subjects

Relationship with payable income tax

All

Deferred income tax = (deferred income tax liabilities at the end of the period-deferred income tax liabilities at the beginning of the period)-(deferred income tax assets at the end of the period-deferred income tax assets at the beginning of the period)

It should be noted that deferred income tax arising from the recognition of deferred income tax assets and deferred income tax liabilities should generally be included in income tax expenses, except for the following two cases:

First, if a transaction or event should be included in owner's equity in accordance with accounting standards, deferred income tax assets or deferred income tax liabilities and their changes arising from the transaction or event should also be included in owner's equity and do not constitute an income statement. Deferred income tax expense (or income).

For example, an enterprise holds an available-for-sale asset at a cost of 10 million yuan. At the end of the accounting period, its fair value is 15 million yuan. If the tax base remains unchanged at 10 million yuan, the tax base and its book value The difference of 5 million yuan is the taxable temporary difference. The enterprise applies an income tax rate of 25%. It is assumed that, apart from this matter, there is no other accounting and taxation difference between the company and the deferred income tax assets and deferred income tax liabilities do not have opening balances.

At the end of the accounting period, when the fair value change of 5 million yuan is confirmed:

Borrow: 5 million available-for-sale financial assets

Loan: Capital reserve-other capital reserve 5 million

When confirming the income tax impact of taxable temporary differences:

Borrow: Capital reserve-other capital reserve 1.25 million

Loan: 1.25 million deferred income tax liabilities.

The second is the assets and liabilities obtained in a business combination whose book value is different from the tax base. The deferred income tax should be recognized. The confirmation of the deferred income tax affects the goodwill generated in the merger or the amount recorded in the current profit and loss of the merger. , Does not affect income tax expenses.

(1) Deferred income tax arising from transactions or events that are directly included in owner's equity According to Article 22 of these standards, transactions or events that are directly included in owner's equity, such as changes in the fair value of available-for-sale financial assets, If there is a temporary difference between the book value of the relevant assets and liabilities and the taxable basis, deferred income tax assets or deferred income tax liabilities should be recognized in accordance with the provisions of this standard and included in capital reserves (other capital reserves).

(2) Deferred income tax generated in a business combination Due to the differences in the accounting standards and tax laws regarding the treatment of a business combination, the booked value of assets and liabilities acquired in a business combination may differ from its tax base. For example, taxable temporary differences or deductible temporary differences arising from business combinations not under the same control, while confirming deferred income tax liabilities or deferred income tax assets, the related deferred income tax expenses (or income) should usually be adjusted Goodwill recognized in a business combination.

(3) In accordance with the provisions of the tax law, deductible losses that can be made up with income from subsequent years and tax credits that can be carried forward to subsequent years can be treated in accordance with the principle of deductible temporary differences.