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Generally profitable firms prefer to use fi an

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Unformatted text preview: financial reporting purposes, tax purposes, or both. • Generally, profitable firms prefer to use fi an accelerated method for tax reporting purposes (MACRS). 11 Certified Financial Controller CFC Depreciation and the MACRS Method • Everything else equal, the greater the else equal the greater the depreciation charges, the lower the taxes paid by the firm. • Depreciation is a noncash expense. • Assets are depreciated (MACRS) on one of eight different property classes. • Generally, the half-year convention is used for MACRS. 12 Certified Financial Controller CFC 6 MACRS Sample Schedule Recovery Year 1 2 3 4 5 6 7 8 13 Property Class Class 3-Year 5-Year 33.33% 20.00% 44.45 32.00 14.81 19.20 7.41 11.52 11.52 5.76 7-Year 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46 Certified Financial Controller CFC Depreciable Basis In tax accounting, the fully installed tax accounting, the fully installed cost of an asset. This is the amount that, by law, may be written off over time for tax purposes. Depreciable Basis = Basis Cost Cost of Asset + Capitalized Expenditures 14 Certified Certified Financial Controller CFC 7 Capitalized Expenditures Capitalized Expenditures are Capitalized Expenditures are expenditures that may provide benefits into the future and therefore are treated as capital outlays and not as...
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