Given a situation in which a company depreciates an asset using the straight-line method, but the tax rules stipulate that the asset should be depreciated using the reducing-balance method, this will, under normal circumstances, initially give rise to a future tax benefit to the entity.

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If the company depreciates an asset using the straight-line method, but the tax rules stipulate that the asset should be depreciated using the reducing-balance method, the company will initially have lower taxable income due to higher depreciation charges. However, this will result in a lower tax base for the asset and hence a higher taxable gain when the asset is sold or otherwise disposed of. This will lead to higher future tax liabilities, not tax benefits.

Given a Situation in Which a Company Depreciates an Asset