Trainer Ltd Is Trying to Decide Whether to Change from the Reducing

question 12

Multiple Choice

Trainer Ltd is trying to decide whether to change from the reducing balance method of depreciation to the straight-line method for both accounting and tax purposes. Using the reducing balance method at the rate allowable for taxation purposes, the expense would be $1 020 000. If it changed to the straight-line method, depreciation expense would be $680 000. If the straight-line method were used instead of the reducing balance method, what would be the effect on depreciation expense?

• A) $122 400 reduction
• B) $217 600 reduction
• C) $340 000 reduction
• D) $217 600 increase

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Definitions:

Future Value

The value of a current asset at a future date based on an assumed rate of growth over time.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

No Further Deposits

A condition in financial agreements where an individual is not required or allowed to make additional contributions beyond the initial or specified amounts.

Deposited

Referring to money that has been placed into a financial account for safekeeping or savings.