Question

Management's choice of depreciation methods will usually create a difference between financial reporting income (net income in the financial statements) and taxable income (for IRS purposes).

a. True.
b. False.

Answer 1

True

Step-by-step explanation:

The depreciation method will always create a difference between the financial reporting income (net income in the financial statements) and taxable income (for IRS purposes) as the taxable income is usually based on a fixed rate determined by the government. This rate gives rise to capital allowances which is the tax term for depreciation.

The tax written down value of the assets would also always vary from the carrying amount in financial account giving rise to temporary and permanent differences that may be reported in the deferred tax liability or assets part of the balances sheet and income statements.