Trainer Ltd is trying to decide whether to change from the reducing balance method of depreciation to the straight-line method for both accounting and tax purposes. Using the reducing balance method at the rate allowable for taxation purposes, the expense would be $1 020 000. If it changed to the straight-line method, depreciation expense would be $680 000. If the straight-line method were used instead of the reducing balance method, what would be the effect on depreciation expense?

Question

Quizplus · Accepted Answer

The reducing balance method results in higher depreciation expenses in the earlier years of an asset's life and lower expenses in the later years. In contrast, the straight-line method results in equal depreciation expenses each year.

In this scenario, the reducing balance method results in $1,020,000 of depreciation expense, while the straight-line method results in $680,000 of expense. Therefore, changing to the straight-line method would reduce depreciation expense by $340,000 ($1,020,000 - $680,000).

Therefore, the best choice is answer choice C, as it correctly identifies the reduction in depreciation expense that would result from changing to the straight-line method.

Trainer Ltd Is Trying to Decide Whether to Change from the Reducing