Which of the following is the best example of a tax shield for an asset?
A) Its periodic amortization
B) Its cost basis
C) Its disposal cost
D) Its trade-in value

Question

Quizplus · Accepted Answer

The periodic amortization of an asset is the process of gradually expensing the cost of the asset over its useful life. As a result, the asset provides a tax shield because the depreciation expense is deductible from taxable income. This reduces the amount of taxable income, which lowers the tax liability, thus, resulting in a tax shield for the asset. The cost basis, disposal cost, and trade-in value of an asset do not provide tax shields.

Which of the Following Is the Best Example of a Tax