Pottery Ltd is trying to decide whether to use straight-line or reducing balance depreciation for its assets for both accounting and tax purposes.If it used straight-line,the depreciation expense for the first year would be $750 000,but if it used reducing balance at the rate allowable for taxation purposes,the expense would be $1 125 000.The company's income tax rate is 30 per cent.
-What would be the effect on depreciation expense if the reducing balance method were used rather than the straight-line method?

Question

Quizplus · Accepted Answer

The reducing balance method would result in a $1,125,000 depreciation expense compared to the $750,000 expense under the straight-line method, which is a $375,000 increase.

Pottery Ltd Is Trying to Decide Whether to Use Straight-Line