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Exercise 9.5

The document summarizes Heinz Company's annual report notes on depreciation methods. It states that Heinz uses the straight-line depreciation method for financial reporting over estimated asset lives ranging from 3-40 years. However, Heinz uses accelerated depreciation methods for tax purposes to lower current taxes. Using accelerated depreciation for financial statements would not be more or less conservative, as analysts adjust for different depreciation methods.

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Shaikh Faraz
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273 views

Exercise 9.5

The document summarizes Heinz Company's annual report notes on depreciation methods. It states that Heinz uses the straight-line depreciation method for financial reporting over estimated asset lives ranging from 3-40 years. However, Heinz uses accelerated depreciation methods for tax purposes to lower current taxes. Using accelerated depreciation for financial statements would not be more or less conservative, as analysts adjust for different depreciation methods.

Uploaded by

Shaikh Faraz
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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EXERCISE 9.

5
A recent annual report of H.J. Heinz Company includes the following note:
Depreciation: For financial reporting purposes, depreciation is provided on the straight-line method over
the estimated useful lives of the assets, which generally have the following ranges:
buildings - 40 years or less; machinery and equipment -- 15 years or less; computer software -- 3 - 7
years; and lease hold improvements -- over the life of the lease, not to exceed 15 years. Accelerated
depreciation methods are generally used for income tax purposes.
A. is the company violating the accounting principle of consistency by using different depreciation
methods in its financial statements than in its income tax returns? Explain.

Ans: The answer is No, they are not violating the accounting principle of consistency because
consistency refers to year to year financial accounting, not to tax accounting

B. Why do you think that the company uses accelerated depreciation methods in its income tax returns?

Ans: the company uses the accelerated depreciation method in order to lower current taxes.

C. Would the use of accelerated depreciation in the financial statements be more conservative or less
conservative than the current practice of using the straight-line method? Explain.
Ans: It is neither more conservative nor less conservative, analysts adjust for different depreciation
methods to make then consistent across companies

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