Income tax depreciation is governed by the tax statutes while the accounting depreciation is governed by the accounting policies of the respective persons. Give the rationale for this dimension.
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- You are building guest huts at a holiday resort, and you need to choose whether to build your huts out of straw, wood, or brick. Straw is the cheapest but depreciates the most quickly; brick is the most expensive but depreciates least; wood is intermediate. Assume that all types of huts are equally picturesque/functional. They differ only in terms of durability. The cost (and depreciation rates) of the different hut types is: - Brick: £3,500 (10% depreciation) - Wood: £3,000 (15% depreciation) - Straw: £2,500 (20% depreciation) a) The interest rate is 5%, which type of hut should you buy? b) The interest rate is 20%, which type of hut should you buy? c) Intuitively, why were the answers for parts (a) and (b) different? Explain in words.For the MACRS method of depreciation, identify (a) the six standardized recovery periods for personal property, (b) the two recovery periods for real property, (c) the assumed salvage value for personal property, and (d ) the default recovery period for an asset not in a stated GDS class.MalMax purchased a depreciable asset. What would be the difference in total assets at the end of the first year if MalMax chooses straight-line depreciation versus double-declining-balance depreciation?
- Compare the different depreciation methods.? Give an example of how companies depreciate their plant assets under each method?Which of the following is not true about depreciation? a. Depreciation is not a cash flow b. To be depreciable, an asset must have a life longer than 1 year c. A 5-year property will generate regular MACRS-GDS depreciation deductions in 6 fiscal years d. For MACRS-GDS an estimate of the salvage values is required.ABC Corporation makes its policy that for every new equipment purchased, the annual depreciation should not exceed 20% of the first cost at any time without salvage value. Determine the length of service if the depreciation used is the SOYD Method.
- Depreciation is a reduction in value of an asset, but it does not reflect its actual usage during ownership. Depreciation is not a function of usage. True FalseConcepcion Industries paid $308,000 in federal taxes last year. If business expenses and depreciation charges were $345,000, what were their gross sales for the year?Which of the following is (are) required to calculate MACRSGDS depreciation deductions? I. Property Class II. Salvage Value III. First Cost IV. Annual Maintenance Costs a. I and III only b. II and III only c. I, II, and III d. I, II, III, and IV.
- TRUE OR FALSE. Depreciation of a property due to more efficient products being produced and made available in the market is called functional depreciation.A builder paid $120,000 for a house and lot. The value of the land was appraised at $65,000, and the value of the house at $55,000. The house was then torn down at an additional cost of $8,000 so that a warehouse could be built on the lot at a cost of $50,000. What is the total value of the property with the warehouse? For depreciation purposes, what is the cost basis for the warehouse?Write note on why depreciation is important in Economic analysis