Question

In: Accounting

should accounting profession allow multiple methods for depreciating long term assets

should accounting profession allow multiple methods for depreciating long term assets

Solutions

Expert Solution

Yes, it is acceptable to use multiple methods of depreciating long term assets. Different company have different types of assets and have different purposes. While computig the tax liability for each company the tax authority cannot identify the purpose and its usage. Hence tax authority have given certain restriction while calculating depreciation.

For eg

2 company uses same machines for 2 different purpose. company A is using it on a regular high intensive work while company B is using it on a timely basis may be for instance once in a week. You know what is depreciation , it means normal wear and tear. The machine in Company A will be depreciated in a much faster pace than company B. But this usage cannot be identified by the tax authorities and hence tax authority have set a maximum % at which the type of machine can be depreciated and each company have to use this % while computing the tax liability. But while preparing the accounts of the company, the balance sheet have to be true and fair, ie the assets should not be over valued.

Hence the company uses the depreciation method on the basis of their usage or such.and for tax purpose we use different menthod of depreciation.This difference is only temporary. the difference will be 0 when the asset is sold or when the asset is completely depreciated.


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