Plants, Properties, and Equipment

Plants, properties, and equipment are stated at cost$,$ less accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units$-$of$-$production method of depreciation is used for pulp and paper mills, and the straight$-$line method is used for other plants and equipment. Depreciable lives generally are $20-40$ years for buildings and $3-20$ years for machinery and equipment.

Instructions

a$.$ Are the depreciation methods used in the company's financial statements determined by current income tax laws? If not, who is responsible for selecting these methods? Explain.

b$.$ Does the company violate the consistency principle by using different depreciation methods for its paper mills and wood products facilities than it uses for its other plants and equipment? If not, what does the principle of consistency mean? Explain.

c$.$ What is the estimated useful life of the machinery and equipment being depreciated with the following straight$-$line depreciation rates?

$5$ percent.

$33$ percent $($round to the nearest year$).$

Who determines the useful lives over which specific assets are to be depreciated?

d$.$ Why do you think a company would use accelerated depreciation methods for income tax purposes, rather than using the straight$-$line method?