Depreciation

CFA Level I
#1

If average age of a company is rising, and the company is using SL which is likely to happen depreciation expense, capital expen rising, rising falling, falling falling, rising rising, falling same, falling falling, same rising, same same, rising same, same

#2

falling falling

#3

falling rising

#4

I don’t understand what you mean here. Depr. exp refers to equipments and it is not clear of your question if you put it in relationship with the age of the company without any assumptions. Normally, the longer the age of the company, the more capital expense put into it (mean the capital expense is rising). But the depreciation expense is depend on the age of the equipment used in company and of course it depend on the usage age of equipment. And during age of company, company may purchase new equipments and liquidate the old ones at different times. “Average age of the company” seems to be the first time i’ve heard of this terminology. Could you pls explain me what it is? That is my idea contribution. Feel free to correct me if any misunderstanding. Thanks alot!

#5

I made this question up, without thinking if it was correct or wrong. by average age, i mean average age of assets. not company.

#6

answer?

#7

I think both rising. The reason is company purchase new equipments from time to time when the old one run out of function or more equipment invested to enlarge its operation. I feel something unsure of my answer but…I cannot cover a big picture of company in this case. Waiting for your clearer and more persuasive answer : )

#8

I was under the impression that if average age of assets is increasing, that means companies have not been adding to their FI. This makes a company less effecient and could mean a sign a future expenditures in order to remain competitve. With depr expense, if assets are getting older, that means Sl must be falling due to the nature of the equation cost-salvage/life. if a company was adding assets its average age would be lower

#9

i’d say, either falling, falling, or same, same

#10

Thanks getterdone and pepp More your ideas bring back to me more confusing by the way. Your opinion sounds reasonable. Still waiting for fixed confirmation. I see Pepp sometimes raise question made by himself/herself. I am not sure if he/she has the answer or not. But the question is good

#11

which is why i sometimes edit the question 3 times. lolol

#12

avg age is equal to accumulated depreciation/depreciation expense in the case of SL, as the years go one and the company does not add to its asset base, depreciation expense will become lower and lower which will increase avg age 99% sure is falling and falling