A recent annual report of H. J. Heinz Company includes the following note:
Depreciation: For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets, which generally have the following ranges: buildings—40 years or less; machinery and equipment—15 years or less; computer software— 3–7 years; and lease hold improvements—over the life of the lease, not to exceed 15 years. Accelerated depreciation methods are generally used for income tax purposes.
a. Is the company violating the accounting principle of consistency by using different depreciation methods in its financial statements than in its income tax returns? Explain.
b. Why do you think that the company uses accelerated depreciation methods in its income tax returns?
c. Would the use of accelerated depreciation in the financial statements be more conservative or less conservative than the current practice of using the straight-line method? Explain.

  • CreatedApril 17, 2014
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