Question

What is the rationale for depreciating assets used in business? Do you agree with it? Does the rationale have any implications on capital formation – that is, investments by big businesses? Does it favor one group of taxpayers versus another? Are there any economic, social, revenue, or political implications?

Answer 1

The rationale is as the asset is used for long time the performance of it reduces which in turn effects the productivity by using it. I will agree completely as for whole life of the asset the depreciation needs to be calculated and considered in the balance sheet and profit and loss statement. Yes this will have big impact for big business since they have to keep the funds ready for long term capital expenditure which in turn have the depreciation it . It will have same impact for all tax payers as this reduces the taxable income for anyone . This is having economic implication