In 2013,JMR Corp.set up a deferred income tax benefit of a tax loss carry forward as the probability of realization was greater than 50%.It is now the end of 2013 and management has determined that 50% of the benefit will not be realized.Management should:
A) Continue to carry the total deferred income tax benefit of the tax loss carry forward.
B) Write down the entire benefit.
C) Write down 50% of the benefit.
D) None of these statements are correct.

Question

Quizplus · Accepted Answer

When management determines that only 50% of the deferred tax benefit of a tax loss carry forward will be realized, they should write down 50% of the benefit. This is because the benefit can only be recognized to the extent that it is more likely than not to be utilized, and in this case, only half of the benefit meets that requirement. Continuing to carry the total benefit, or writing down the entire benefit, would not be appropriate in this situation.