The method of depreciation that most companies use for tax purposes results in lower income in the early years of an asset's life than would be computed if the company used straight-line depreciation.

Question

Quizplus · Accepted Answer

This is true because the method of depreciation that most companies use for tax purposes is called Accelerated Depreciation, which allows for larger depreciation expenses in the earlier years of an asset's life and smaller ones in the later years. This results in lower taxable income in the early years, which helps to reduce a company's tax liability. Straight-line depreciation, on the other hand, spreads the depreciation expense evenly over the useful life of the asset, resulting in a higher taxable income in the early years.

The Method of Depreciation That Most Companies Use for Tax