Mabuhay Company prepared the following reconciliation of income per book with income per tax return for the year ended December 31, 2006 Book income before tax, 750,000 Add temporary difference: Construction revenue which will reverse in 2007, 100,000 Deduct temporary difference: Depreciation expense which will reverse in equal amounts in each of the next four years, (400,000) Taxable income, 450,000 The income tax rate is 35%. What amount should Mabuhay report in its 2006 income statement as the current provision for income tax? a. 157,500 b. 262,500 c. 297,500 d. 367,500

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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.