AA Company began operations at the beginning of 2020. The following information pertains to this company: Pretax financial income for 2020 is P100,000 The tax rate enacted for 2020 and future years is 40% Differences between 2020 income statement and the tax return are listed below:  Warranty expense accrued for financial reporting purposes amounts to P7,000. Warranty deductions per tax return amounted to P2,000 Income on construction contracts using the percentage of completion method per books amounts to P92,000. Income on construction contracts for tax purposes amounts to P67,000. Depreciation of PPE for financial reporting purposes amounts to P60,000. Depreciation of these assets amounts to P80,000 for the tax return. A P3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income. Interest revenue earned on an investment in tax-exempt bonds amounts to P1,500.  Taxable income is expected for the next few years. Determine the taxable income for 2020.

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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.