Why do companies choose one method of deprecation for financial reporting purposes and another for tax purposes?
When depreciation is calculated for financial statement purposes, a company generally wants to present the most favorable impression (the highest income) possible; therefore the straight-line method is used. However, if the objective of the company’s management is to minimize its income tax liability, then double declining (accelerated depreciation) is used because the company can save more on income taxes because depreciation is a tax shield. 11) Be able to deal with a change in depreciation estimate. 12) Be able to make journal entries to: a) Record the acquisition of property, plant, and equipment b) Record depreciation expense on property, plant, and equipment, c) Record the disposal of property, plant, and equipment. If there are proceeds involved, be able to include these and any gain or loss in your journal entry. Credit gains and debit losses. 13) Be able to make the journal entries described above for natural resources and for intangible assets. PP&E use word depreciation. Nat
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