Which of the following statements about depreciation is TRUE?
A) The tax effects of depreciation are not adjusted for inflation.
B) The tax effects of depreciation must be adjusted for inflation.
C) Canadian tax laws allow for inflation adjustments to depreciation each year.
D) Capital investment is encouraged by not allowing depreciation to be adjusted for the effect of inflation.

Question

Quizplus · Accepted Answer

The tax effects of depreciation are not adjusted for inflation in most countries, including the United States and Canada. This means that the tax deductions for depreciation do not take into account changes in the value of money over time due to inflation. This can result in a higher tax burden for businesses as the actual economic value of their assets decreases over time due to inflation, but their tax deductions for depreciation remain the same.

Which of the Following Statements About Depreciation Is TRUE