When you write down an asset, what happens to pre-tax income?

• A. There is a loss equal to the write-down amount, reducing pre-tax income
• B. Pre-tax income increases by the write-down amount
• C. Pre-tax income unchanged
• D. The write-down increases tax expense

Answer: (A)

When you write down an asset, you recognize an impairment loss on the income statement. That loss reduces pre-tax income by exactly the amount of the write-down. It’s a non-cash expense that reflects the asset’s carrying value no longer being recoverable, so earnings before tax fall by that amount. The asset on the balance sheet is also lowered to the new, lighter value. After-tax impact follows from the lower pre-tax income (tax expense would typically decrease accordingly), but the direct effect asked about is the reduction in pre-tax income itself.