Depreciation is often described as a "tax shield."
Required:
A.Depreciation does not require a cash outlay.(The cash outlay occurred when the asset was acquired. )However,depreciation reduces taxable income and consequently,reduces the cash outflow for income taxes.Thus,depreciation provides a reduction in cash outflows for income taxes,or in other words,shields some of a firm's income.
A.Explain how depreciation provides such a shield.
B.MACRS is an accelerated depreciation system.Explain how an accelerated system can provide a more beneficial tax shield than,say,a straight-line depreciation system.
B.Under an accelerated depreciation system,the asset's cost is written off more rapidly than under the straight-line system.This leaves funds for re-investment sooner,thus allowing a company to generate greater returns because the money is invested for a longer period of time.

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The Answer of Depreciation is often described as a "tax shield."
Required:
A.Depreciation does not require a cash outlay.(The cash outlay occurred when the asset was acquired. )However,depreciation reduces taxable income and consequently,reduces the cash outflow for income taxes.Thus,depreciation provides a reduction in cash outflows for income taxes,or in other words,shields some of a firm's income.
A.Explain how depreciation provides such a shield.
B.MACRS is an accelerated depreciation system.Explain how an accelerated system can provide a more beneficial tax shield than,say,a straight-line depreciation system.
B.Under an accelerated depreciation system,the asset's cost is written off more rapidly than under the straight-line system.This leaves funds for re-investment sooner,thus allowing a company to generate greater returns because the money is invested for a longer period of time.

Depreciation Is Often Described as a "Tax Shield