Question

In which of the following situations would an entity be allowed to offset deferred tax assets against deferred tax liabilities?

A. When there is uncertainty about future taxable profits.
B. When the entity has sufficient taxable income in the current period.
C. When the entity has a history of profitable operations.
D. When there is a clear pattern of future taxable profits.

Answer 1

An entity is allowed to offset deferred tax assets against deferred tax liabilities A) when there is uncertainty about future taxable profits.

Step-by-step explanation:

In the given options, an entity would be allowed to offset deferred tax assets against deferred tax liabilities when there is uncertainty about future taxable profits.

This means that if the entity is unsure about its ability to generate enough taxable profits in the future, it may choose to offset its deferred tax assets and liabilities to minimize the potential impact on its financial statements.

It is important to note that offsetting is only allowed if an entity has both deferred tax assets and liabilities in the same tax jurisdiction and their realization is probable.

Therefore, the correct answer is A. When there is uncertainty about future taxable profits.