Accounting for Income Taxes：所得税会计.ppt

Accounting for Income Taxes,Accounting for Income Taxes,2,Objectives of the Chapter,To learn the permanent difference between the financial income and taxable income.To learn the temporary difference between the financial income and taxable income.To learn the accounting treatment for the temporary difference and permanent difference.,Accounting for Income Taxes,3,Permanent Difference versus Temporary Difference,Permanent Difference:A difference between financial income and taxable income in an accounting period that will never be reversed in later accounting periods.This difference does not require an interperiod tax allocation.,Accounting for Income Taxes,4,Permanent Difference versus Temporary Difference(contd.),Examples of Permanent Difference1.Revenue recognized for F/R(financial report)but not taxable.a.Interest on municipal bonds.b.Life insurance proceeds payable to a corporation upon the death of an insured employee,Accounting for Income Taxes,5,Permanent Difference versus Temporary Difference(contd.),Examples(contd.)2.Expense recognized for F/R but not tax deductible:Life insurance premium paid for employees.3.Expense is tax deductible but not recognized for F/R purpose:Percentage depletion in excess of Cost Depletion.,Accounting for Income Taxes,6,Permanent Difference versus Temporary Difference(contd.),Temporary Difference:A difference between a taxable income and a financial income in an accounting period that will be reversed in later accounting periods.This difference requires an intertperiod tax allocation.Causes of Temporary Difference:Different treatment between GAAP and IRC,Accounting for Income Taxes,7,Difference between IRC and GAAP,Depreciation GAAP:any systematic depr.methodIRC:ACRS or MACRSInstallment Sales(future taxable)GAAP:on accrual basisIRC:on cash basis,Accounting for Income Taxes,8,Difference between IRC and GAAP(contd.),Warranty Expense(future deductible)GAAP:accrual basis(estimated and recognized at the end of each period)IRC:cash basis(tax deductible when paid)Bad Debt Expense(future deductible)GAAP:estimated and recognized at the end of each period.IRC:tax deductible when accounts defaulted.,Accounting for Income Taxes,9,Temporary Difference:an example,Depreciation method:For tax filing purpose:ACRS,4-year life For financial reporting purpose:straight-line method,5-year life The asset was purchased on 1/1/x1 with a cost of$10,000 and a zero residual value.,Accounting for Income Taxes,10,Temporary Difference:an example(contd.),Financial depr.expense vs.tax depr.:,Accounting for Income Taxes,11,Temporary Difference:an example(contd.),a.$10,000*50%*0.5=2,500b.$7,500*50%=3,750 c.$3,750*50%=1,875 d.$1,875*50%=937.5(1,875/1.5=1,250),Accounting for Income Taxes,12,Temporary Difference:an example(contd.),Assuming a 30%tax rate,the following table presents the annual temporary difference and the deferred tax liability:,Accounting for Income Taxes,13,Temporary Difference:an example(contd.),T-account of the deferred tax liability Deferred Tax Liability 20 x3.37.5 150.20 x1 20 x4.225 525.20 x2 20 x5.412.5 0.20 x5,Accounting for Income Taxes,14,Interperiod Income Tax Allocation,Example A:the following information is available for the year ended 12/31/x1:Accounting income=$10,400 Taxable income=$9,000(AI TI)Tax Rate=30%The difference of$1,400 is resulting from using ACRS for I/T filing while using S-L for F/R purposes.This difference will be reversed as follows:,Accounting for Income Taxes,15,Interperiod Income Tax Allocation,Reversed Amount(F/R depr.Tax Depr.)20 x1$500 20 x2 700 20 x3 200 Total 1,400Tax payable for 20 x1=9,000*30%=$2,700,Accounting for Income Taxes,16,Interperiod Income Tax Allocation(contd.),Alternative Accounting TreatmentsI.No Allocation of Deferred I/T Liam.Income Tax Exp.2,700 Income Tax Payable 2,700II.With Allocation(comply with the matching principle)Deferred Approach(APB No.11)Income Tax Expense 3,120 Income Tax Payable 2,700 Deferred Income Tax Liam.420*,Accounting for Income Taxes,17,Interperiod Income Tax Allocation(contd.),Alternative Accounting Treatments(contd.)III.With Allocation-Liability Approach(SFAS 109)Income Tax Expense 3,120 Income Tax Payable 2,700 Deferred Income Tax Liam.420*,Accounting for Income Taxes,18,Interperiod Income Tax Allocation(contd.),*Deferred tax lia.is calculated as income tax exp.minus income tax payable.*Deferred tax lia.is calculated based on the reversed amount in the future times the future tax rate.If the future tax rate remains at 30%,the deferred tax lib.Is$420.Otherwise,the deferred tax lib.will not be$420(see the example next).,Accounting for Income Taxes,19,Interperiod Income Tax Allocation(contd.)Example B,Example B:The taxable income of 20 x1=$9,000 The accounting income of 20 x1=$10,400Partial Income statement:Pretax financial income$10,400 Less:additional accelerated depr.Deducted for I/T(1,400)Taxable Income$9,000,Accounting for Income Taxes,20,Interperiod Income Tax Allocation(contd.)Example B(contd.),At the beg.of 20 x1,the deferred I/T has a balance of$0(due to 20 x1 is the first year of occurrence of difference in depr.)and the current tax rate is 30%.There is no expectation of tax rate changes in the future.,Accounting for Income Taxes,21,Interperiod Income Tax Allocation(contd.)Example B(contd.),The financial depr.exp.will exceed the taxable depr.by the following amount in the next three years:a&b:assumed numbers.,Accounting for Income Taxes,22,Interperiod Income Tax Allocation(contd.)Example B(contd.),The following table shows the annual temporary difference,accumulative temporary diff.and deferred liability(tax rate=30%):,Accounting for Income Taxes,23,Interperiod Income Tax Allocation(contd.)Example B(contd.),T-account of Deferred income tax lia.Deferred I/T Liam.20 x2.150 420.20 x1 20 x3.210 20 x4.60 0(bal)20 x4,Accounting for Income Taxes,24,Interperiod Income Tax Allocation(contd.)Example B(contd.),J.E.(for 20 x1)(based on APB No.11;the deferred approach)Income Tax Expense 3,120a Income Tax Payable 2,700 b Deferred Income Tax Liam.?ca:$10,400(accounting income)*30%b.$9,000(taxable income)*30%c.?=3,120-2,700,Accounting for Income Taxes,25,Interperiod Income Tax Allocation(contd.)Example B(contd.),J.E.(for 20 x1)(based on SFAS 109;the liability approach)Income Tax Expense?a Income Tax Payable 2,700 b Deferred Income Tax Liam.420ca.?=b+c=2,700+420=3,120 b.$9,000(taxable income)*30%c.$420=$500*30%+700*30%+200*30%revered revered revered lia.Of 20 x2 lia.Of 20 x3 lia.Of 20 x4,Accounting for Income Taxes,26,Interperiod Income Tax Allocation(contd.)Example B(contd.),Note c is also presented in the following table:a.Due to future taxable income future acc.Income.It is a result of future tax depr.future acc.Depr.b.Future expected tax rate should be used.Example B assumed all future tax rates remain at 30%.,Accounting for Income Taxes,27,Interperiod Income Tax Allocation(contd.)Example B(contd.),Assuming taxable income of 20 x2,20 x3 and 20 x4 are$7,000,$6,000 and$8,000,respectively,journal entries of income tax for those year are as follows(all future tax rate remains at 30%)(follow SAFS 109):20 x2 Deferred I/T Liam.150 a I/T Expense?b I/T Payable 2,100ca.See the previous table for year 20 x2 b.income tax expense=$2,100 150 c.taxable income 7,000*30%,Accounting for Income Taxes,28,Interperiod Income Tax Allocation(contd.)Example B(contd.),20 x3 Deferred I/T Liam.210 a I/T Expense?b I/T Payable 1,800c20 x4 Deferred I/T Liam.60 d I/T Expense?e I/T Payable 2,400fa.See the previous table for year 20 x3 b.income tax expense=$1,800 210 c.taxable income 6,000*30%d.See the previous table for year 20 x4 e.income tax expense=$2,400 60 f.taxable income 8,000*30%,Accounting for Income Taxes,29,Interperiod tax Allocation with Different Expected Tax Rate,Using the same information as in Example B except the tax rates are expected to change in the future as follows:20 x1=30%(the current year)20 x2=40%20 x3=40%20 x4=40%The ending bal.of the deferred I/T lia.for year 20 x1 would be$560 instead of$420 as in Example B when future rate states at 30%.,Accounting for Income Taxes,30,Interperiod tax Allocation with Different Expected Tax Rate(cont.),The computation of the ending balance of deferred I/T lia.For 20 x1 is as follows:,Accounting for Income Taxes,31,Interperiod tax Allocation with Different Expected Tax Rate(cont.),Journal Entry for 20 x1 is as follows based on a 40%expected tax rate for 20 x2 to 20 x4:Income Tax Expense?a Income Tax Payable 2,700 b Deferred Income Tax Liam.560ca.?=b+c=2,700+560=3,260 b.$9,000(taxable income)*30%c.$560=$500*40%+700*40%+200*40%or as shown in the previous table,Accounting for Income Taxes,32,Interperiod tax Allocation with Different Expected Tax Rate(cont.),What if at the end of 20 x2,the tax rate has been increased to 45%(instead of 40%as expected at the end of 20 x1),the deferred liability at the end of 20 x1 should have been$625a rather than$560 as using the 40%expected rate.The following adjusting entry should be prepared on 12/31/20 x2:a.$500*45%+700*45%+200*45%=$625,Accounting for Income Taxes,33,Interperiod tax Allocation with Different Expected Tax Rate(cont.),12/31/20 x2Loss on Adjustment of Deferred Taxes 65 a Deferred I/T Liam.65a.$625-560=$65,Accounting for Income Taxes,34,Interperiod tax Allocation Example C,The following is a reconciliation of a pretax financial income with a taxable income for 20 x3:Financial Income$3,000Add:estimated warranty exp.deducted for financial reporting in excess of actual warranty exp.deducted for I/T(a future deductible)100 Less:Additional accelerated depr.deducted for I/T(a future taxable)(150)Taxable Income$2,950,Accounting for Income Taxes,35,Interperiod tax Allocation Example C(contd.),No expectation of tax changes in the future and the current tax rate is 30%.The beginning balance of deferred income tax lia.account is$495 due to the first year of depr.exp.difference occurred in 20 x1.,Accounting for Income Taxes,36,Interperiod tax Allocation Example C(contd.),Additional information regarding depr.exp.Lib.as follows:a.20 x3 is the current year.,Accounting for Income Taxes,37,Interperiod tax Allocation Example C(contd.),The followings are projections regarding the temporary differences for years 20 x4 to 20 x6(future years):a.Tax warranty cost in excess of financial warranty cost b.Financial depr.exp.In excess of tax depr.exp.,Accounting for Income Taxes,38,Interperiod tax Allocation Example C(contd.),J.E.for the current year 20 x3(SFAS 109):I/T Exp.?aDeferred I/T assets 30b I/T Payable 885c Deferred I/T Liam.45d a.$885+45-30=$900 b.$50*30%+30*30%+20%30%=100*30%=$30 c.$2,950*30%=$885 d.(800+850+150)*30%-$495=$540-495=$45,Accounting for Income Taxes,39,Interperiod tax Allocation Example C(contd.),T-accounts of deferred tax lia.And deferred tax assets:Deferred I/T Asset Deferred I/T Liam.beg.bal.0 495.beg.bal.Adj.Of 20 x3 30 45.adj.Of 20 x3 30a 540ba.$50*30%+30*30%+20%30%=100*30%=$30 b.(800+850+150)*30%=1,800*30%=$540,Accounting for Income Taxes,40,Interperiod tax Allocation Example C(contd.),Presentation of selected accounts on I/S:Pretax Income$3,000 I/T exp.(900)Net Income$2,100Presentation of selected accounts on B/S:Current Assets:Current Lia.:Deferred Tax Assets 30 I/T Payable 885 Deferred Tax Lia.540,Accounting for Income Taxes,41,Interperiod tax Allocation Example C(contd.),Had APB No.11 been followed(the deferred approach),the following entry will be prepareda:I/T Exp.(3,000*30%)900 I/T Payable(2,950*30%)885 Deferred I/T Liam.(900-885)15a.This treatment is NOT acceptable.,