>> Excellent question, this is a key point, and
we'll talk more about this point in week eight.
But, you've gotta keep it in mind that the goals of tax reporting, and
finance reporting are quite different.
For tax reporting, the government's goal is to raise cash revenue.
Now given that people always try to cheat on taxes,
the government wants to be as explicit as possible in setting depreciation rules,
so people don't have this wiggle room to try, and cheat on their taxes, or
try to manage their taxes downward if we want to be a little bit more kind.
But, for financial reporting, we want managers to communicate how the companies
doing, are you getting enough revenue to cover all the costs of doing business?
And by giving managers the ability to choose the depreciation method,
to choose the salvage value, and
the useful life to reflect how they in to use the asset, we get better information.
We get information about how managers are going to use up
their long-lived assets that we wouldn't get if we
were following a one size fits all tax reporting approach.
So, don't be, to be scared off by these two methods of reporting.
One, tax reporting, is to generate tax revenue, it's very explicit.
Financial reporting, the goal is to provide users information, and
the best way that we can often do that is to provide flexibility, and discretion.