Selected information from Kentucky Corp. ’ s financial statements for the year ended December 31 was as follows (in $ millions) : Property, Plant & Equip. 10 Accumulated Depreciation (4) Deferred Tax Liability 0.6 The balances were all associated with a single asset. The asset was permanently impaired and has a present value of future cash flows of $ 4 million. After Kentucky writes down the asset, Kentucky’ s tax accounts will be affected as follows ( the tax rate is 40 percent) :（）
A. deferred tax liability will be eliminated and deferred tax assets will increase $ 0.2 million.
B. deferred tax liability will be eliminated and tax assets will increase $1.4 million.
C. income tax expense will decrease $ 0. 8 million.
参考答案：A
解析：
A permanently impaired asset must be written down to the present value of its future cash flows. The asset’ s carrying value of ($10-$4=)$6million must be reduced by $ 2 million to $ 4 million. An impaired value write-down reduces net income for accounting purposes, but not for tax purposes until the asset is sold or disposed of. At a 40 percent tax rate, the eventual write-down for tax purposes of $ 2 million will be worth $ 0. 8 million in deferred tax assets. The $ 0.6 million deferred tax liability is eliminated and a deferred tax asset of $ 0.2 million is established.