SIE (Securities Industry Essentials) Practice Exam

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Depreciation write-offs represent which of the following?

A method to enhance company profits
An IRS mandated percentage allowable annual non-cash charge against revenues
A legal way to defer income taxes
A strategy to increase asset value

The correct answer is: An IRS mandated percentage allowable annual non-cash charge against revenues

Depreciation write-offs are a non-cash charge against revenues that businesses can use to account for the decrease in value of their assets over time. This is an accounting method that allows companies to spread out the cost of an asset over its useful life rather than deducting the entire cost in one year. Options A, C, and D are incorrect as they do not accurately describe depreciation write-offs. Depreciation write-offs do not enhance company profits, but rather reduce taxable income. They are not a legal way to defer income taxes, but rather a way to accurately reflect the decrease in value of assets over time. They also do not directly increase asset value, but rather account for the decrease in value over time.