What would you reply to the below text? Let us remember that depreciation for tax reportingdifferences between
Question:
What would you reply to the below text?
Let us remember that depreciation for tax reporting—differences between financial and tax accounting systems are normal and expected. Many companies use and prefer the accelerated depreciation in computing taxable income because it postpones its tax payments by charging higher depreciation expense in the early years and lower amounts in the later years (Wild and Shaw, 2019, p. 365). Federal income tax law rules for depreciating assets are called the Modified Accelerated Cost Recovery System (MACRS). MACRS “allows straight-line depreciation for some assets but requites accelerated depreciation for most kinds of assets” (Wild and Shaw, 2019, p. 365).
However, it is not acceptable for financial reporting because it allocates costs over an arbitrary period that is less than the asset's useful life. Also, it is important to remember that although companies can use different methods - one on their financial statements and another on their tax forms- they cannot change the methods whenever they want. Consistency is key.