The Choice of Depreciation Method Under Uncertainty

Menachem Berg, Giora Moore

Research output: Contribution to journalArticlepeer-review

Abstract

This study presents a framework for choosing between depreciation methods when future cash flows from operations are not assumed known with certainty but only in probabilistic terms. Specifically, the accelerated depreciation method and the straight‐line depreciation method are compared and mathematical conditions are derived for the depreciation method that should be adopted in different circumstances and under different tax systems. It is shown that, contrary to conventional wisdom, the straight‐line depreciation method is the preferred method for lowering the company's present value of tax liability in various realistic situations.

Original languageEnglish
Pages (from-to)643-654
Number of pages12
JournalDecision Sciences
Volume20
Issue number4
DOIs
StatePublished - Dec 1989

Keywords

  • Accounting Theory and Decision Analysis

ASJC Scopus subject areas

  • Business, Management and Accounting (all)
  • Strategy and Management
  • Information Systems and Management
  • Management of Technology and Innovation

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