Abstract

This study examines the relation between the depreciation method choice and the capital equipment intensity and return on asset. It has been studied that firms' ownership, asset scale, financial leverage, capital asset intensity, return on asset and profitability give various effects on the choice between the straight line method and the accelerated method for the depreciation of machinery. But in case of korea, it is examined that the tax deduction effect of machinery depreciation expense, the deferred tax effect and the current or carry－forward application of investment tax credit on machinery and equipment expenditure have the important relation to the depreciation method choice. Empirical results indicate the highter capital intensity induces the higher possibility of the straight line method reporting the higher income for the current full tax credit on machinery acquisition of the current year, and that the higher return on asset induces the higher possibility of the accelerated method reporting the lower income for the tax saving and tax deferral. The capital intensity and return an asset give the opposite effects on the depreciation method choice. The return on asset of 2 factors of capital intensity and return on asset gives the bigger effect on the depreciation method choice. I find that the high profitability even in case of the high capital intensity increases the possibility of the accelerated method choice and that the low profitability even in case of low capital intensity increases the possibility of the straight line method choice.

Keywords

• Depreciation Method
• Firm size
• Financial leverage
• capital intensity
• return on asset
• investment tax credit
• straight line method
• accelerated method

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