Question

Immediate expensing of depreciation has an advantage for profitable firms in that it moves cash flows forward, thus increasing their present value. On the other hand, in the year that depreciation is immediately expensed the reported current year's profits are lower because of the higher depreciation expenses. However, the reported profits problem can be solved by using different depreciation methods for tax and stockholder reporting purposes.

a. True
b. False

Answer 1

The Answer is A. True

Because the companies Prepare Financial statements for Different Stakeholders ie For Shareholders , taxation Authorities etc. It is Possible that For Taxation Purposes Financial statements are Prepared using (For Example) WDV Method of Depreciation and for shareholders Annual Report Purposes SLM Method of Depreciation is Followed or may be Different rates of Depreciation. Such Usage of Diferent methods of Depreciation leads to difference in amounts of Depreciation and thereby difference in Profits for 2 different set of Financial statements. However such is a Timing Difference only as read under the Provisions of Deffered Taxes.