What is depreciation and amortization? What's the difference? It is an accounting concept that has an indirect impact on cash flow as it is deductible for tax purposes and lowers the overall amount of taxes paid for that period. Therefore, it does impact or lower cash outflows for taxes. That is called the tax shield of depreciation and amortization. Over the course of my career, companies have increased their percentage of intangible property that must be amortized. Now, it is very common where companies will have little property, plant and equipment, but lots of intangible property. Why?

What is depreciation and amortization? What's the difference? It is an accounting concept that has an indirect impact on cash flow as it is deductible for tax purposes and lowers the overall amount of taxes paid for that period. Therefore, it does impact or lower cash outflows for taxes. That is called the tax shield of depreciation and amortization. Over the course of my career, companies have increased their percentage of intangible property that must be amortized. Now, it is very common where companies will have little property, plant and equipment, but lots of intangible property. Why?

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 25DQ

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Similar questions

Using tax depreciation for tax purposes and straight-line depreciation for financial reporting, do deferred tax liabilities lead to true future cash flow?
Discuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting?
Answer the following questions in depth .... Why do accountants have to classify items as capital or revenue expenditures? Why do you treat exchanges of similar and dissimilar assets differently? Aren't they all exchanges? Is it true that the higher the depreciation, the lower the net income? If that is the case, why would we not want the lowest depreciation method so we can show the highest net income? Why do we have various methods of depreciation? Isn't that encouraging misleading results?
How is a business activity distinguished from an investment activity? why is this distinction important for the purpose of calculating federal income taxes? What types of losses may potentially be characterized as passive losses?
The faster an asset can be depreciated, according to IRS rules, the greater a company's after-tax profits. Is this true or false?
is less Tax on Profit on Sale of Asset and less Operating Costs (revenue and expenses) or (other cash flows)?
Which of the following statements is false? A For tax purposes, companies can use the MACRS depreciation method. B When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings. C If the expected future cash flow is less than the carrying amount, the asset is considered impaired. D If an impairment loss is recorded, depreciation must be recalculated since the book value changed. The answer A is wrong
What is the difference between depreciation expense and accumulated depreciation? What two items surprised you that a company is allowed to capitalize? What do you know as reasons a company may choose one deprecation method over another?
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Which depreciation method is most common for financial reporting? Which depreciation method is most common for tax reporting? Why do companies choose these methods?
In which situation does the tax depreciation allow the firms to defer paying income taxes?
How does depreciation give tax benefits? What are the advantages of Internal Financing?