An entity recognizes a liability for £2 million in respect of accrued product warranty costs. For tax purposes, the product warranty costs will be deductible when the entity claims or incurs the costs. The tax rate is 30 per cent and the entity believes that it will earn a minimum of £10 million per year taxable profit for the foreseeable future.

The entity should recognize:

A. Neither a deferred tax asset nor liability.

B. A deferred tax liability of £0.6 million.

C. A deferred tax liability of £1.4 million.

D. A deferred tax asset of £0.6 million.