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 the following?
-Depreciation expense:

Question

Quizplus · Accepted Answer

If Trainer Ltd changes from the reducing balance method to the straight-line method, there would be a reduction in depreciation expense. The reduction can be calculated as follows:

Reduction in depreciation expense = Depreciation expense under reducing balance method - Depreciation expense under straight-line method 
= $1,020,000 - $680,000 
= $340,000 reduction

Therefore, the best choice would be C, as it represents the correct reduction in depreciation expense if Trainer Ltd changes from the reducing balance method to the straight-line method.

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