The following is an extract from the Notes to the financial statement of Hilux Corp. concerning accounting for plants, properties and equipment: "Plants, properties, and equipment are stated at cost, less accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for major pulp and paper mills, and the thestraight-line method is used for other plants and equipment. Annual straight-line depreciation rates are, for buildings—2.50 percent to 8.50 percent, and for machinery and equipment—5percent to 33 percent.”

Instructions. 

A. Are the depreciation methods used in the company’s financial statements determined by current income tax laws? If not, who is responsible for selecting these methods? Explain.

b. Does the company violate the consistency principle by using different depreciation methods for its paper mills and wood products facilities than it uses for its other plants and equipment? If not, what does the principle of consistency mean? Explain

.c. What is the estimated useful life of the machinery and equipment being depreciated with a straight-line depreciation rate of:1? 10 percent.2. 30 percent (round to the nearest year). Who determines the useful lives over which specific assets are to be depreciated?

d. Why do you think a company would use accelerated depreciation methods for income tax purposes, rather than using the straight-line method?

Answer rating: 100% (QA)

A No current income tax laws does not affect the depreciation method to be used by the company The c... View the full answer