ABC Company reported pretax financial income of 7,000,000 for the year ended December 31,2021. The taxable income was 6,500,000. The differences is due to accelerated depreciation for income tax purposes. The income tax rate is 25% and ABC Company made estimated tax payment of 500,000 during the current year.

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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.