The Modified Accelerated Cost Recovery System (MACRS)is often used by companies to calculate depreciation expense for tax purposes. Which of the following is most correct?
A)MACRS allows greater tax deductions related to depreciation earlier in the life of an asset than straight line depreciation does.
B)MACRS uses the half-year convention in calculating depreciation expense.
C)MACRS always depreciates the value of an asset down to zero (as opposed to a salvage value)if the asset is held long enough by the company.
D)Even though depreciation is a non-cash expense, the use of MACRS can improve the profitability of a project as compared to the same project using straight line depreciation.
E)All of the above are correct.

Question

Quizplus · Accepted Answer

A) MACRS uses an accelerated method of depreciation where a higher percentage of the value of an asset is depreciated earlier in its life. This results in greater tax deductions in the earlier years of the asset's life compared to straight line depreciation.
B) MACRS uses the half-year convention which assumes that an asset is purchased in the middle of the year and only allows for half a year's worth of depreciation in the first year.
C) MACRS does not always depreciate the value of an asset down to zero, as there is an option to use a salvage value if the company expects to sell the asset at the end of its useful life.
D) Even though depreciation is a non-cash expense, the use of MACRS can improve the profitability of a project as it reduces a company's taxable income and therefore lowers its tax liability. This can result in greater cash flows and ultimately improve the profitability of the project.
Therefore, all of the above statements are correct.

The Modified Accelerated Cost Recovery System (MACRS)is Often Used by Companies