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showing that the straight-line method produces a larger net income due to the fact that in year 1 the depreciation is $22,500 compared to $50,000 when using the DDB method.
In a different light depreciation is tax deductible so management is faced with the decision of using DDB method versus straight-line in order to reduce income taxes: the higher the depreciation the lower the income tax. This will ultimately affect the Statement of Cash Flows but may benefit as depreciation can have a cash benefit.
The method a company chooses to use would depend on their goals, how business has been, whether or not any large purchases have been made that require the use of depreciation, and what position they are in at the current year...
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