IT Company reported the following results for the year ended December 31, 2020, its first year of operations: Income (per books before income taxes)- P750,000 Taxable income-P1,200,000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2021. What should IT record as a net deferred tax asset or liability for the year ended December 31, 2020, assuming that the enacted tax rates in effect are 40% in 2020 and 35% in 2021? A.P157,500 deferred tax liability B.P157,500 deferred tax asset C.P180,000 deferred tax liability D.P180,000 deferred tax asset

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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.