Plant, Properties, and Equipment are stated at cost lessaccumulated depreciation. For financial reporting purposes, thecompany uses the units-of-production method of depreciating itsmajor pulp and paper mills and certain wood products facilities,and the straight-line method for other plans andequipment.
Annual straight-line depreciation rates for financialreporting purposes are as follows:
• Building 2.5 % to 8%
• Machinery and Equipment 5% to 33%
• Woods equipment 10% to 16%
For tax purposes, depreciation is computed utilizingaccelerated methods.
Required:
1. Are the depreciation methods used in the company'sfinancial statements by current income tax laws? If not, who isresponsible for selecting these methods?
2. Does the company violate the consistency principle by using different depreciation methods for its paper mills and wood products facilities than it uses for its other plan and equipment? If not, what does the principle of consistency mean? Explain
3. What is the estimated useful life of the machinery andequipment being depreciated with a straight-line deprecation rate of:
i. 5%
ii. 33%
4. Who determines the useful lives over which specific assetsare to be depreciated?
5. Why do you think the company uses accelerated depreciation methods for income tax purposes, rather than using thestraight-line method?