Final answer:
A deferred tax asset occurs when a company has tax deductions that exceed taxable income, allowing the company to reduce taxable income in future periods. This typically originates from differences between the tax code and accounting practices.
Step-by-step explanation:
A deferred tax asset is recognized in a situation where the amount of taxes to be paid on the company's taxable income is less than what is recorded on the company's financial statements. This is typically the result of temporary differences between the way tax law and accounting rules recognize income and expenses.
The specific circumstance that would result in a deferred tax asset for the current year is when there are tax deductions that exceed taxable income (option 1). This means the company has paid or carried forward tax deductions that can be used to reduce taxable income in the future, leading to a future tax benefit.
Concerning the other options:
- When taxable income exceeds tax deductions, this could potentially lead to a deferred tax liability, not an asset.
- Having tax credits that exceed tax liabilities may result in immediate tax savings or could carry forward as a credit, but it's not precisely a deferred tax asset in the current context.
- A situation where tax liabilities exceed tax credits implies a current tax liability rather than a deferred tax asset.