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Answer: The existing deferred tax asset should be reversed.
Under IFRS, if the criteria for economic benefits are not met on the current balance sheet date, an existing deferred tax asset or liability related to the item should be reversed. This aligns with the principle that deferred tax assets should only be recognized to the extent that it is probable future taxable profit will be available against which the asset can be utilized. Option B is incorrect because a valuation allowance is specific to US GAAP, not IFRS. Option C is incorrect as it describes the treatment for a deferred tax liability, not an asset, under specific conditions.
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A deferred tax asset was previously recognized. At the current balance sheet date, the criteria for economic benefits are not met, but the tax differences are still expected to be temporary. What is the appropriate accounting treatment?
A
The existing deferred tax asset should be reversed.
B
A valuation allowance account should be established.
C
The existing deferred tax asset should be reclassified as equity.
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