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 net book value of assets?

Question

Quizplus · Accepted Answer

Switching to the straight-line method would result in a lower annual depreciation expense ($680,000 instead of $1,020,000). This means that the net book value of the assets would decrease at a slower rate, leading to a higher net book value compared to using the reducing balance method. The difference in the annual depreciation expense is $340,000, which would not be subtracted from the asset's value under the straight-line method, hence leading to a $340,000 increase in the net book value of assets.

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