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Chapter 9: 10RQ (page 488)

What is the depreciation method that is used for tax accounting purposes? How is it different than the methods that are required by GAAP to be used for financial accounting purposes?

Short Answer

Expert verified

The method used for tax accounting is the Modified Accelerated Cost recovery system, it is different from the depreciation methods of GAAP as in this method businesses cannot decide the useful life of assets

Step by step solution

01

Method used in tax accounting

The method that is required by Internal Revenue Service (IRS) to be used for tax accounting is the Modified Accelerated Cost Recovery System (MACRS).

02

Difference between MACRS and other depreciation methods required GAAP

The major difference between MACRS and depreciation methods required by the GAAP is that in MACRS, the businesses do not get to choose the useful life of the asset, rather Internal revenue service specifies the useful life based on the specific classes.

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Most popular questions from this chapter

Donahue Oil Incorporated has an account titled Oil and Gas Properties. Donahue paid \(6,400,000 for oil reserves holding an estimated 400,000 barrels of oil. Assume the company paid \)510,000 for additional geological tests of the property and $470,000 to prepare for drilling. During the first year, Donahue removed and sold 75,000 barrels of oil. Record all of Donahue’s transactions, including depletion for the first year.

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Donahue Oil Incorporated has an account titled Oil and Gas Properties. Donahue paid \(6,400,000 for oil reserves holding an estimated 400,000 barrels of oil. Assumethe company paid \)510,000 for additional geological tests of the property and$470,000 to prepare for drilling. During the first year, Donahue removed and sold75,000 barrels of oil. Record all of Donahue’s transactions, including depletion for thefirst year.

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