Question

Using different depreciation methods for book purposes versus tax purposes for the same asset, if allowed, will result in

a. the direct result of the differing goals of financial and tax accounting.
b. not allowed since the amount can only be calculated one way or the other, not both.
c. against the Internal Revenue Code, and as such, against the law.
d. contrary to GAAP.

Answer 1

Different depreciation methods for book and tax purposes reflect the distinct goals of financial accounting and tax accounting, adhering to GAAP and the IRC, respectively.

Step-by-step explanation:

Using different depreciation methods for book purposes versus tax purposes for the same asset, if allowed, will result in the direct result of the differing goals of financial and tax accounting. This is permissible because financial accounting and tax accounting have different objectives and are governed by separate sets of regulations: Generally Accepted Accounting Principles (GAAP) for financial reporting and the Internal Revenue Code (IRC) for tax purposes.

The concept of accounting profit refers to the total revenue minus explicit costs, which is the basis for income tax calculations. However, a business assesses its success not just through accounting profit but also through economic profit, which includes implicit costs alongside explicit costs. This distinction is important in understanding how a company can be profitable on a tax basis while still considering economic reality.