What is the effect of using the accelerated depreciation method (as opposed to the straight-line method)...

What is the effect of using the accelerated depreciation method (as opposed to the straight-line method) for assets on a company’s earnings before taxes (EBT), and thus the tax liability?

Expert Solution

Accelerated depreciation method will mean that higher amount of depreciation in earlier years and lower amount of depreciation in later years of an asset, so it would be meaning that there will be a lower amount of earning before taxes for the company in the earlier years there would be a higher amount of depreciation and it will also mean that there will be a lower amount of taxation liability also because depreciation are tax exempted and hence it will be meaning that there will be a lower earning before taxes and there will be a lower taxes for the company so there would be a lower net earning for the company in the earlier years due to accelerated depreciation method.

In the later years, Accelerated depreciation method would be leading to lower amount of depreciation and higher amount of earnings and higher amount of taxability for the company as well so in the later years the company will be having a higher tax liability and it will be overall a beneficial scheme for the company from the context of time value of money because greater savings in the beginning would be leading to a higher time value of money and higher benefit for the company.

jeff jeffy answered 2 years ago

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