Question

When a firm can _____ its capital equipment over a shorter period, it cuts its taxes _____. appreciate; later appreciate; now depreciate; now depreciate; later

Answer 1

When a firm can depreciate its capital equipment over a shorter period, it cuts its taxes now.

A capital asset's value dropping is referred to as capital depreciation. To determine the recovery cost incurred on fixed assets over the course of their useful lives, assets are depreciated. When the asset reaches the end of its useful life or you need to sell it, this is used as a sinking fund to replace it. Depreciation lowers the taxable income, which lowers the tax burden. Capital assets are listed as an asset on the balance sheet and are depreciated over the course of their useful lives. Businesses typically have to spread out the costs of capital investments over a number of years in accordance with predetermined depreciation schedules.

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