Question

a large, family-owned dairy farm operating in the western part of virgina is preparing its annual tax return, and the cfo's objective to pay as little tax as possible while not violating tax laws. how would you expect the cfo to calculate depreciation expense

Answer 1

Annual tax return is a document which states the income and expenses of a certain firm or individual and it is given to the tax department for further checking.

Depreciation expenses is the decrease in the cost of an asset that has appeared over a period of time because of its use. Any expense that is related to a certain asset is included to calculate the depreciation expense.

Depreciation expense: Cost of the asset - residual value/ total units expected to be produced * actual units produced

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Answer 2

It would be suitable to compute the depreciation using the "Double declining balance" depreciation technique to achieve the CFO's goal of paying the least amount of tax while compiling the company's annual tax return.

Depreciation expenses are the decrease in the cost of an asset that has appeared over a period of time because of its use. Any expense that is related to a certain asset is included to calculate the depreciation expense.

When using the Double Declining Method, the depreciation is calculated at a rate that is double that of the Straight Line Method, which results in the highest Depreciation Expense. The highest allowed depreciation expense will lead to a smaller net income and, thus, a lower tax burden.

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