What is undistributed after-tax profits? Calculation with example

Undistributed profit after tax is an important indicator to monitor the financial situation of a business. Join 1C Vietnam to learn useful information about the concept, meaning and calculation of undistributed after-tax profits in the article below.

1. What is undistributed profit after tax?

Undistributed after-tax profit is an indicator representing the after-tax profit and loss that has not been settled or distributed at the time of reporting. This is an indispensable indicator in the corporate balance sheet, frequently used by readers of financial statements or capital contributors and shareholders.

2. Meaning of undistributed after-tax profits

Undistributed after-tax profits are often used for the following purposes:

• Divide profits to investors and business owners in the form of dividends.
• Divide profits to shareholders or profits to members.
• Leave capital to reinvest in the business activities of the enterprise.
• Leave a reserve for future mishaps.

3. How to calculate undistributed after-tax profits with practical examples

Undistributed after-tax profits are often determined by the formula:

Undistributed profit after tax = Profit after tax – Funds appropriated – Dividends paid to shareholders.

In particular, the appropriated funds include: investment and development fund; welfare Fund; bonus fund. The level of appropriation for these funds is usually calculated according to a certain percentage expressed in the charter or financial management regulations of the enterprise. Conditions for setting up distribution funds from business profits must comply with the provisions of the Enterprise Law.

For example: Company B has profit after tax in 2023 of 40,000 (million VND). On April 10, 2024, Enterprise B holds a shareholders' meeting with a decision to establish funds with data including:

• Development investment fund: 10,000
• Reward fund: 3,000
• Welfare fund: 2,000
• Dividend payment to shareholders: 20,000

We can calculate the following data:

• On January 1, 2024: Convert undistributed after-tax profits of 2023 (Account 4212) into accumulated undistributed after-tax profits of previous years (Account 4211).
• April 11, 2024: B's accumulated undistributed after-tax profit = 40,000 - 10,000 - 3,000 - 2,000 - 15,000 = 10,000
• At the same time, the account of the appropriated funds will increase corresponding to the above figures.

4. Undistributed after-tax profits and frequently asked questions

4.1 Is undistributed after-tax profit an asset or a capital source?

Undistributed after-tax profits are the capital source shown in account 421 of the first account group 4 (equity account group).

4.2. Are undistributed after-tax profits and retained profits the same?

These two accounts are two different parts. Retained profits are the remaining after-tax profits for the year after dividends have been distributed to shareholders. Undistributed after-tax profits are the profits retained during the year plus the balance of undistributed profits at the beginning of the period.

4.3. Does using undistributed after-tax profits to implement an investment project require an adjustment to the investment registration certificate?

According to regulations, when investors decide to adjust an investment project to change the content on the investment registration certificate, they are required to carry out procedures to adjust the investment registration certificate.

Above is all the information about undistributed after-tax profits that businesses can refer to. It can be said that understanding and understanding how to calculate profit after tax will help investors estimate fees for business activities. To manage undistributed after-tax profits well as well as effectively control financial targets, businesses should use 1C:Company Management software - one of the comprehensive corporate management solutions today. Specifically, the software will help businesses track each loan, debt, revenue and profit, thereby establishing financial funds and making scientific revenue and expenditure plans. Refer to more software information at 1C Vietnam website!