Question

Your company has always depreciated assets using the straight-line method. Your tax accountant has explained that a switch to the double-declining balance method would minimize taxes in the current year, but you are concerned about the impact this change would have on the value of long-term assets on the balance sheet and future tax liabilities.

Respond to the following in a minimum of 175 words:

Assuming your projected sales (and therefore tax bracket) are predicted to increase dramatically over the next 5 years, what should you do?

Answer 1

Answer to Question.

The Company was earlier following the Staright Line basis of the depreciation that mean that the company is charging the depreciation at fixed amount over the period of time .In case of Declining method of depreciation , the amount of deprection decreases over the period of time for the purpose of taxation , the deprecaition as per companies act is not allowed and depreciation as per the Income tax is considered ..So shifting the depreciation from Staright line to Declining method of deprecation would not have any impact in taxation in income tax .In case of Companies balance sheet , it would impact the profit ratios.

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