NSync Manufacturing has a deferred tax asset account with a balance of P300,000 at the end of 2015 due to a single cumulative temporary difference of P 750,00. At the end of 2016, this same temporary difference has increased to a cumulative amount of P1,000,000. Taxable income for 2016 is P1,700,000. The tax rate is 40% for 2016, but enacted tax rates for all future years are 35%. Assuming it’s probable that 70% of the deferred tax asset will be realized, what amount will be reported on NSync manufacturing statement of financial position for the deferred tax asset at December 31, 2016

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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.