The gain or loss on the disposal of a depreciable asset reported in financial statements often differs from that reported for income tax purposes.The principal reason for the difference is:
A)The cost of the asset is different for financial reporting and income tax purposes.
B)The sales price of the asset is different for financial reporting and income tax purposes.
C)Different depreciation methods have been used in financial statements and in income tax returns.
D)The company has made an error because the same amount of gain or loss should appear in the income tax return as in the financial statements.

Question

Quizplus · Accepted Answer

The difference in gain or loss on the disposal of a depreciable asset reported in financial statements and income tax returns is primarily due to the use of different depreciation methods. Different depreciation methods are used for financial reporting (such as straight-line or accelerated methods) and for income tax purposes (such as MACRS or ACRS). These different methods affect the amount of depreciation expense recorded for the asset and ultimately the gain/loss on disposal.

The Gain or Loss on the Disposal of a Depreciable