Question

An acquirer reports a deferred tax asset as one of the assets acquired in a business combination when:________

Answer 1

Answer:

C is the correct answer,a deferred tax asset arises when book value of acquired assets is greater fair value

Explanation:

The tax authority would have used fair value which is lower compared to book value to compute capital allowances,as a result capital allowance is less than the depreciation calculated based on book value.

Such capital allowance which is lesser is then deducted from earnings to arrive at higher taxable profit and a higher tax is calculated.

Since the company has paid much more tax in the current period it has a deferred tax asset.