Question

Your company has always depreciated assets using the straight-line method. Your tax accountant has explained that a switch to the double-declining balance method would minimize taxes in the current year, but you are concerned about the impact this change would have on the value of long-term assets on the balance sheet and future tax liabilities.

Respond to the following in a minimum of 175 words:

• Assuming your projected sales (and therefore tax bracket) are predicted to increase dramatically over the next 5 years, what should you do?

Answer 1

Presently, the company has depriciated its assests using straight-line method, however the accountant has informed that by using the method double-declining balance method, the taxes to be paid by the company would decrease. I completely agree with the suggesstion of the accountant.

According to the question, the projected sales of the company is expected to increase dramatically, which will mean that the company will have to pay increased taxes. If the company follows double-declining balance method of depreciation, the expenses of the company will increae, which will therefore reduce the profits of the compnay. Reduced profits of the company would mean that the company will have to pay reduced taxes.

If the compnay follows double-declining method of depreciation, the asset would be rapidly depreciated and the company will have to purchase new assets. Taking into consideration that the sales will increase dramatically, the company might require additionally or improved or new machinery. Following double-declining method of depreciation will support the purchase of machinery for increased sales. Thus, the advise/suggesstion of the accountant to follow double-declining method of depreciation to reduce taxes is correct