Asked by Dekia Mitchell on Jun 01, 2024
Verified
When the half-year rule was introduced, do you think firms looked favourably or unfavourably upon the change?
Half-year Rule
A tax regulation allowing businesses to claim half-year depreciation for assets acquired or disposed of during a fiscal year.
Firms
Business organizations or entities engaged in commercial, industrial, or professional activities, either for profit or non-profit.
- Understand the effects of taxation on business activities and liquidity.
- Analyze the relevance of cash flow from assets and its components in assessing the financial health of a company.
Verified Answer
DW
Danielle WashingtonJun 05, 2024
Final Answer :
Firms who purchased assets in January could now use only one-half of its original cost to calculate depreciation for the year, compared to the full cost that could have been used under the old system. Also, firms who could previously claim the original cost for a whole year, even thought they had only purchased and put in use the asset in December, had a reduction in the amount they could claim. (Therefore, all firms claim a smaller amount of depreciation in the first year so that their taxes increase and usable cash flows decrease.) Therefore, firms would not be in favour of the change.
Learning Objectives
- Understand the effects of taxation on business activities and liquidity.
- Analyze the relevance of cash flow from assets and its components in assessing the financial health of a company.