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Explanation & Answer
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Solutions to Week 7 Homework Assignment:
Answer Q1
MACRS is Modified Accelerated Cost Recovery System and is a method used to figure
out the percentage or fraction of the assent a company can write off when filling out its
income tax forms.
Accounting Depreciation vs Tax Depreciation
a) Accounting Depreciation
b) Tax Depreciation
Prepared by the company for accounting Prepared for income tax purposes
purposes
preparation
Based on accounting principles and Based on regulations of the Internal revenue
concepts
service rules
Depreciation methods
The company can select one out of the It used accelerated depreciation calculation
many methods
methods
Accuracy
Accounting depreciation methods is ore It is calculated under a ridged set of rules and
accurate
ids thus less accurate
Yes. A company keeps both the books: Financial accounting depreciation for preparing its
financial statements and tax depreciation for preparing its tax returns.
Answer Q2
Property, plant and equipment represents fixed assets of the business. Generally from the
accounting equation, A=C+L, sale of fixed assets would result in the reduction in the net
value of the fixed assets though it may result in increment in cash value in hand or in the
bank.
When property, plant or machinery is sold, the final value of the property’s accumulated
depreciation is subtracted from its initial purchase cost so as to determine its book value.
Gains or losses on income from the sales of...