A friend owns and operates her own business and is concerned about completing her tax return. She
Question:
A friend owns and operates her own business and is concerned about completing her tax return. She owns several assets and uses straight-line depreciation for business purposes. She intended to use straight-line depreciation for tax purposes also, but recently heard about another method called MACRS. She has asked for your advice on which method to use on her tax return. Write a brief memo recommending a depreciation method and explaining why you believe it should be used.
Step by Step Answer:
The straightline method should be used because it is simple and will n...View the full answer
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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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