30.03.2023 - 05:05

Which depreciation method would you generally prefer to use for income tax purposes? Why? a. Double-declining-balance because it gives the most total depreciation over the asset’s life. b. Straight-line because it is simplest. c. Double-declining-balance

Which depreciation method would you generally prefer to use for income tax purposes? Why?

a. Double-declining-balance because it gives the most total depreciation over the asset’s life.

b. Straight-line because it is simplest.

c. Double-declining-balance because it gives the fastest tax deductions for depreciation.

d. Units-of-production because it best tracks the asset’s use.

Answers (1)
  • CreativePromo
    April 2, 2023 в 15:16

    The preferred depreciation method for income tax purposes may vary based on several factors, such as the type of asset, its estimated useful life, and the company's tax strategy. However, among the given options, the most appropriate choice would be the Straight-line method because it is the simplest and most widely used depreciation method.

    The Straight-line method assumes that the asset's value decreases by an equal amount over its useful life, which is calculated by dividing the asset's cost by its estimated useful life. This results in a constant depreciation expense over the asset's life, making it easier to calculate and understand for tax purposes.

    On the other hand, the Double-declining-balance method, while giving the most total depreciation over the asset's life, results in higher depreciation expenses in the early years of the asset's life, which may not be suitable for all companies. Additionally, while it may give the fastest tax deductions for depreciation, it may not be the most appropriate method if the company's goal is to minimize its tax liability over the asset's life.

    Finally, the Units-of-production method may be suitable for assets whose value decreases with usage, such as machinery and equipment. This method tracks the asset's use and calculates the depreciation expense based on the number of units produced or hours of use. However, it may be more complex to calculate and may not be suitable for all assets.

    Overall, the Straight-line method is the preferred method for income tax purposes because of its simplicity, clarity, and wide usage.

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