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.


Related Solutions

What is "depreciation" essentially, and should the accounting profession allow multiple methods for depreciating long-term assets?...
What is "depreciation" essentially, and should the accounting profession allow multiple methods for depreciating long-term assets? Why or why not?
Why does the accounting profession allow for multiple methods in accounting for inventory sold and on...
Why does the accounting profession allow for multiple methods in accounting for inventory sold and on hand (LIFO, FIFO, weighted average, specific identification)? Can they all be right (i.e., accurately assign cost to goods sold and unsold)?
In accounting we "capitalize" long-lived assets by putting them on the balance sheet and then depreciating...
In accounting we "capitalize" long-lived assets by putting them on the balance sheet and then depreciating those assets over time, based on some concept that each year the asset represents less value to the business and that each year a certain amount of the value of the asset is used up in the business processes. For accountants, it would be much easier just to expense long-lived assets at the time of purchase. Even though it requires more work, what are...
Prepare a memorandum of the accounting requirements for the impairment of long-term assets under the US...
Prepare a memorandum of the accounting requirements for the impairment of long-term assets under the US GAAP and IFRS including a comparison of the two methods. You must include citations from the Accounting Standards Codification (ASC) and the International Accounting Standards (IAS) in your memo. Treat your memo as a formal memo addressed to the Chief Financial Officer (CFO), which will also be reviewed by the company’s auditors.
prepare a memorandum of the accounting requirements for the impairment of long-term assets under the US...
prepare a memorandum of the accounting requirements for the impairment of long-term assets under the US GAAP and IFRS including a comparison of the two methods. you must include citations from the accounting standards codification (ASC) and the international accounting standards (IAS) in your memo. treat your memo as a formal memo addressed to the chief officer (CFO). whcih will also be reviewed by the company's auditors
Compare and contrast the three (3) methods for depreciating plant assets. Recommend the method that maximizes...
Compare and contrast the three (3) methods for depreciating plant assets. Recommend the method that maximizes profits for both a shorter period of time and a longer period of time. Please cite
Blocher Company is evaluating the following methods of accounting for depreciation of long-lived assets and inventory:...
Blocher Company is evaluating the following methods of accounting for depreciation of long-lived assets and inventory: Depreciation: straight-line; double-declining balance (DDB) Inventory: first in, first out (FIFO); last in, first out (LIFO) Assuming a deflationary environment (prices are falling), which of the following combinations will result in the highest net income in year 1? Group of answer choices A) DDB; FIFO. B) Straight-line; LIFO. C) Straight-line; FIFO.
What are the two basic methods of accounting for long-term construction contracts? Indicate the circumstances that...
What are the two basic methods of accounting for long-term construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.
Depreciation by Two Methods; Sale of Long-term or relatively permanent tangible assets such as equipment, machinery,...
Depreciation by Two Methods; Sale of Long-term or relatively permanent tangible assets such as equipment, machinery, and buildings that are used in the normal business operations and that depreciate over time.Fixed Asset New tire retreading equipment, acquired at a cost of $718,750 on September 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated The estimated value of a fixed asset at the end of its useful life.residual value of $61,800....
A firm has $200,000 in current assets, $800,000 in long-term assets and $900,000 in long-term financing....
A firm has $200,000 in current assets, $800,000 in long-term assets and $900,000 in long-term financing. What is its net working capital (CA -CL)? Hint: Prepare a Balance Sheet.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT