Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

8. Long Lived Assets

Depreciation: Summary of Main Methods

Financial Accounting

8. Long Lived Assets

Depreciation: Summary of Main Methods

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Multiple Choice

If you have a depreciation expense of \( D \) and a tax rate of \( t \), what is your depreciation tax shield?

Depreciation tax shield = \( D \times t \)

Depreciation tax shield = \( D + t \)

Depreciation tax shield = \( t / D \)

Depreciation tax shield = \( D / t \)

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Verified step by step guidance

Understand the concept of a depreciation tax shield: It represents the reduction in taxable income due to the depreciation expense, which ultimately lowers the tax liability.

Identify the formula for the depreciation tax shield: The correct formula is Depreciation tax shield = \( D \times t \), where \( D \) is the depreciation expense and \( t \) is the tax rate.

Break down the formula: \( D \times t \) means you multiply the depreciation expense \( D \) by the tax rate \( t \). This calculation gives the amount of tax savings due to depreciation.

Compare the given options: Evaluate each option provided in the problem and confirm that \( D \times t \) is the correct formula, as it aligns with the concept of the depreciation tax shield.

Apply the formula in practice: To calculate the depreciation tax shield for a specific scenario, substitute the values of \( D \) and \( t \) into the formula \( D \times t \). This step ensures you understand how to use the formula in real-world applications.