Question

Which of the following statements about the Modified Accelerated Cost Recovery System (MACRS) is true? (Select all that apply.)

Check All That Apply

• MACRS is not acceptable for financial reporting purposes.

• MACRS is similar to the units-of-production method and is applied over relatively short asset lives to yield high depreciation expense in the early years.

• Most corporations use MACRS to calculate depreciation expense for their tax returns.

• The lower amounts depreciation expense reported under MACRS reduces a corporation's taxable income and therefore the amount it must pay in taxes.

Answer 1

me of the most common methods used to calculate depreciation are straight-line, units-of-production, sum-of-years digits, and double-declining balance, an accelerated depreciation method. The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system used in the United States.Straight‐line depreciation is the method that companies most frequently use for financial reporting purposes.

B. FALSE

MACRS is not similar to units of production method

MACRS (full form is Modified Accelerated Cost Recovery System) is a depreciation method for tax purposes used in the United States and it allows for taking a higher depreciation deduction in the earlier years and less in the later years.

The unit of production method is a method of depreciation of the value of an asset over time. It becomes useful when an asset's value is more closely related to the number of units it produces than the number of years it is in use

C. True

The MACRS depreciation method allows greater accelerated depreciation over the life of the asset. This means that the business can take larger tax deductions in the initial years and deduct less in later years of the asset's life.Before the MACRS model became law, annual inventory write-offs could be scattershot. Today, companies can plan ahead by using this depreciation system, knowing which assets fall into the 3-, 5-, 7- and 10-year depreciation categories. Real estate assets are given longer depreciation schedules, most often 27.5 or 39 years. The ability to project far into the future can be a huge benefit for corporations whose philosophies mandate long-term planning so financial surprises are minimized down the road.