Non-accounting major need help with technical question
Whatup chimps,
non-accounting/finance major here, I was going through some technicals and came across this question. It might seem really easy for most of you but I can't find the solution online: Tax depreciation is $2 million over 5 years, while financial statement depreciation for the asset is $1 million over 5 years. Walk me through the impact of these differences on the financial statements, assuming a tax rate of 40%.
I'd appreciate any help, and feel free to post your technical questions too.
monkeytomd, pure crickets, that's where I come in. Any of these useful?
Calling relevant pros to the rescue! pkossako mergeandacquire padeloswp8
If those topics were completely useless, don't blame me, blame my programmers...
Correct me if I am misunderstanding, but I think the corporation is writing off $2m dollars off of its taxes (getting a $2m*0.4 tax benefit) and only writing off $1m off of its assets and adding back $1m into CFFO. Not sure if this is correct as I am only a student as well.
I fortunately haven’t had to think about this stuff in depth in a while, so I could be forgetting stuff. But, you basically get extra cash from the tax shield ($1mm * tax rate). This is offset by a Deferrered tax liability on the balance sheet for the same amount. The financial depreciation of 1mm then flows through the statements as normal.
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