Explanation

Deferred tax assets arise when:

1. Accounting profit < Taxable income - This means the company has paid more taxes currently than what would be recognized under accounting rules
2. Temporary differences are recoverable - The company expects to recover these tax benefits in future periods

Why option A is correct:

• When accounting profit is less than taxable income, the company pays more taxes now than what would be recognized under accounting principles
• This creates a "tax overpayment" that can be recovered in future periods
• These recoverable amounts are recognized as deferred tax assets on the balance sheet

Why option B is incorrect:

• When accounting profit is greater than taxable income, the company pays less taxes now than what would be recognized under accounting principles
• This creates deferred tax liabilities, not assets

Why option C is incorrect:

• Income taxes payable less than income tax expense could indicate various timing differences, but doesn't specifically address the recoverable nature of deferred tax assets
• This relationship could occur with both deferred tax assets and liabilities

Key Concept: Deferred tax assets represent future tax benefits that will reduce future tax payments. They arise from temporary differences where taxes have been paid or recognized earlier than they would be under accounting rules, and these amounts are expected to be recovered in future periods.