Accelerated depreciation has an advantage for profitable firms in that it moves some cash flows forward, thus increasing their present value.On the other hand, using accelerated depreciation generally lowers the reported current year's profits because of the higher depreciation expenses.However, the reported profits problem can be solved by using different depreciation methods for tax and stockholder reporting purposes.

Question

Quizplus · Accepted Answer

This statement is correct. Accelerated depreciation does have the advantage of increasing the present value of cash flows for profitable firms, but it also lowers reported profits in the current year due to higher depreciation expenses. However, the problem of lower reported profits can be addressed by using different depreciation methods for tax and stockholder reporting purposes.

Accelerated Depreciation Has an Advantage for Profitable Firms in That