Reference no: EM133026697

Question - Keene also discovered that Plexicon has an explicit policy of selling off plant assets before they reversed in the deferred tax liability account. This policy, coupled with the rapid expansion of its plant asset base, allowed Plexicon to "defer" all income taxes payable for several years, even though it always has reported positive earnings and an increasing EPS. Keene checked with the legal department and found the policy to be legal, but she's uncomfortable with the ethics of it.

Required -

Why would Plexicon have an explicit policy of selling plant assets before the temporary differences reversed in the deferred tax liability account?

Does this practice pose an ethical dilemma? If it does, describe the dilemma. If not, why not?

What position, department or outside parties would be affected by Plexicon's ability to "defer" income taxes payable for several years, despite positive earnings?

If you were Sarah Keene, CPA, what would you say to the management of Plexicon?