Account 243 – Deferred tax assets

1. Rules for accounting

a) This account is used to record current value, and increases or decreases of deferred tax assets.

When recording a deferred tax asset, if the change in enterprise income tax rates in the future has been known and the deferred tax asset is reverted when the new tax rates have been taken effect, the new tax rates shall be applied to the deferred tax assets.

b) Tax basis of an asset or a liability and temporary difference:

- The tax basis of assets is the value deducting from taxable income when recovering the book value of the assets. If the income is not subject to taxes, the tax basis of the asset shall equal book value of such asset. The tax basis of a liability equals (=) its book value minus (-) value to-be deducted from taxable income when the liability is paid in future periods. The tax basis of an unearned revenue shall equal (=) its book value minus (-) value of non-taxable revenue in the future periods.

- Temporary difference equals (=) book value of the asset or liability in the balance sheet minus (-) the tax basis of such asset or liability. Temporary differences include: deductible temporary difference and taxable temporary difference. Deductible temporary difference means an temporary difference arising deductible amounts when determining taxable income in future when the book value of asset items are recovered or liabilities are paid.

+ Temporary difference in time is a type of temporary difference, for example: if the book profits recorded in this accounting period but the taxable income is recorded in another accounting period.

+ A temporary difference between book value of an asset or a liability and the tax basis of such asset or liability cannot be a temporary difference in time, for example: When an asset is re-evaluated, the book value of that asset changes but its tax basis does not change, a temporary difference shall arise. However, the recovering time of the book value and the tax basis does not change, so that such temporary difference is not a temporary difference in time.

+ Because the time in which the asset or the liability must be recovered or such asset or liability is offset against taxable income is limited, when determining deferred tax, the term ―Permanent difference‖ shall not be used to distinguish temporary difference.

c) If the enterprise estimates that it is definite to earn taxable future profits to use the deductible temporary difference, taxable losses and unused preferential tariff treatment, deferred tax assets shall be recorded relating to:

- Deductible temporary differences (other than temporary difference arising from initial recognition of the asset or liability paid for a transaction other than business combination transactions; and do not affect to accounting profits and taxable income (or taxable losses) at the transaction time).

- The remaining taxable losses and unused preferential tariff treatment after deduction shall be transferred to subsequent year.

d) At year-end, the enterprise must prepare ―Statement of deductible temporary difference determination‖, ―Statement of deductible unused temporary difference observation‖, the deductible value transferred to subsequent year of unused taxable losses and preferred taxes shall be the basis to prepare ―Statement of deferred tax asset determination‖, to determine value of deferred tax assets recognized or reverted during a year.

dd) The recognition of deferred tax asset in a year shall be carried out by offsetting deferred income tax assets arisen this year against business income tax assets recognized in previous years, but they are reverted in this year according to the following rules:

- If the deferred tax assets arisen during a year are greater than deferred tax assets reverted during the year, the difference between them shall be recognized as deferred tax assets and a decrease in deferred tax expenses shall be recorded.

- If the deferred tax assets arisen during a year are smaller than deferred tax assets reverted during the year, the difference between them shall be recognized as a decrease in deferred tax assets and an increase in deferred tax expenses shall be recorded.

e) When the taxable losses or preferential tariff treatment are used and deductible temporary difference no longer have influence on taxable profits (when assets are recovered or liabilities are paid partly or totally), the deferred tax assets must be reverted.

g) When preparing financial statements, if the enterprise estimates that it is definite to earn taxable future profits, the deferred tax assets not recognized in the previous years shall be recorded to a decrease in deferred tax expense.

h) The offsetting between deferred tax assets and deferred tax payables shall be carried out only if the balance sheet is prepared, not when the deferred tax assets are recorded on the accounting records.

2. Structure and contents of account 243 – Deferred tax assets

Debit: Increases in value of deferred tax assets.

Credit: Decreases in value of deferred tax assets.

Debit balance: Balance of value of deferred tax assets at the end of period.

3. Method of accounting for several major transactions

a) If the deferred tax asset arisen during a year is greater than the deferred tax asset reverted during the year, the positive difference between the deferred tax asset arisen and the deferred tax asset reverted during a year shall be recorded to value of deferred tax assets as follows:

Dr 243 - Deferred tax assets

Cr 8212 – Deferred tax expenses.

b) If the deferred tax asset arisen during a year is smaller than the deferred tax asset reverted during the year, the negative difference between the deferred tax asset arisen and the deferred tax asset reverted during a year shall be recorded to a decrease in deferred tax assets as follows:

Dr 8212 – Deferred tax expenses.

Cr 243 - Deferred tax assets

Source: Circular 200