There are two main reasons why we need to deal with depreciation. Which of the b
ID: 2733326 • Letter: T
Question
There are two main reasons why we need to deal with depreciation. Which of the below is one of these reasons?
The gain but not the loss when a capital asset is disposed
The tax rate implications from the OCF
The tax flow implications from the OCF
The loss but not the gain when a capital asset is disposed
The gain but not the loss when a capital asset is disposed
The tax rate implications from the OCF
The tax flow implications from the OCF
The loss but not the gain when a capital asset is disposed
Explanation / Answer
Answer is the tax flow implications from the OCF beacuse depreciation is a non cash expenditure and which can be claimed as an expenditure under income tax laws.
When a company prepares its income tax return, depreciation is listed as an expense, and so reduces the amount of taxable income reported to the government.If depreciation is an allowable expense for the purposes of calculating taxable income, then its presence reduces the amount of tax that a company must pay. Thus, depreciation affects cash flow by reducing the amount of cash a business must pay in income taxes.