Stone Co. began operations in 20x1 and reported P225,000 in income before income taxes for the year. Stone’s 20x1 tax depreciation exceeded its book depreciation by P25,000. Stone had nondeductible book expenses of P10,000 related to permanent differences. Stone’s tax rate for 20x1 was 40%, and the enacted rate for years after 20x1 is  35%.  In its December 31, 20x1, balance sheet, what amount of deferred income tax liability should Stone report?

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A:

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A:

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.