Deferred Taxes on an acquired company should be adjusted based on:

The adjustment of deferred taxes on an acquired company is fundamentally based on the acquirer’s valuation of the account. When a company acquires another, it must consider the tax implications of the acquired company's assets and liabilities, including deferred taxes. These deferred taxes are linked to differences between the carrying amounts of the acquired assets and liabilities as recognized under accounting standards and their tax bases.

The acquirer must evaluate how the acquired company’s assets and liabilities will affect future tax payments. This assessment includes estimating the potential future tax implications associated with these differences. The acquirer’s valuation takes into account how these deferred taxes will impact the overall value of the acquisition and influences the accounting treatment moving forward. Thus, the correct approach to adjusting deferred taxes is precisely in line with the acquirer's evaluation of the associated accounts, as they need to reflect the expected tax consequences attributable to the acquisition.

The other options do not accurately capture the basis for deferring tax adjustments in mergers and acquisitions. The initial tax liability of the acquired company does not cover future implications adequately. Fair market value adjustments might influence how assets are evaluated, yet they do not specifically address the need for deferred tax adjustments in relation to the acquiring company's forecast. Lastly, market conditions at the acquisition date can impact valuations