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, which of the following is NOT affected?

Question

Quizplus · Accepted Answer

The choice of depreciation method (reducing balance or straight-line) affects the amount of depreciation expense recognized in the income statement, which in turn affects net profit and income tax liability due to the different expense amounts. However, it does not directly affect cash flow from operations since depreciation is a non-cash expense.

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