QUESTION IMAGE
Question
which method of depreciation calculation gives a company an equal tax benefit from one year to the next?
activity - based
straight line
declining balance
salvage
Brief Explanations
To determine the depreciation method with equal annual tax benefit, we analyze each option:
- Activity - based: Depreciation depends on asset usage (e.g., hours used), so it varies yearly.
- Straight line: Depreciation expense is calculated as $\frac{\text{Cost}-\text{Salvage Value}}{\text{Useful Life}}$, resulting in an equal amount each year. This equal expense leads to equal tax benefits (since depreciation reduces taxable income).
- Declining balance: Depreciation is higher in early years and decreases over time, so tax benefits are not equal.
- Salvage: Salvage value is the asset’s residual value, not a depreciation method.
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B. Straight line