 # depreciation

Which of the following statements about depreciation is FALSE? A) To account for the purchase of a machine, a company may use either SL or the SYD depreciation. Return on investment for the machine will initially be higher under SL than under SYD. B) A company acquires a machine with an estimated ten-year service life. If the company uses the sum-of-the-year’s-digits (SYD) depreciation method instead of the SL method its income will be higher in the tenth year. C) Accelerated depreciation methods tend to increase both net income and stockholders’ equity when compared with the straight-line method. D) Straight-line depreciation (SL) introduces a built-in increase in return on investment over the asset’s life.

C?

C

I think A. Accelerated depreciation under SYD… so denominator of equation is lower.

mcf Wrote: ------------------------------------------------------- > I think A. Accelerated depreciation under SYD… > so denominator of equation is lower. accelerated depn results in WIDER expensem, so net falls, and be definition, so does SE (because SE includes retained earnings, and we know that lower net = lower RE)

C If you are having difficulty answering this question, good luck!

C is false NI and Deprciation are the same under both methods, assuming same salvage value

getterdone Wrote: ------------------------------------------------------- > C is false > > NI and Deprciation are the same under both > methods, assuming same salvage value Just be carefull because this is the case at the end of the depreciation period

C I think A could be correct because the % change in NI is greater than the % change in the investment in the machine.

of course strange, you gotta believe in me getterdone Wrote: ------------------------------------------------------- > of course strange, > > you gotta believe in me I believe in you! I just take that we have everything clear to be on the safe side very good, however, why D is correct? getterdone Wrote: ------------------------------------------------------- > C is false > > NI and Deprciation are the same under both > methods, assuming same salvage value

strangedays Wrote: ------------------------------------------------------- > getterdone Wrote: > -------------------------------------------------- > ----- > > C is false > > > > NI and Deprciation are the same under both > > methods, assuming same salvage value > > Just be carefull because this is the case at the > end of the depreciation period WHAT DO YOU MEAN BY THIS?

I like the cut of your jib!

pepp Wrote: ------------------------------------------------------- > C > > If you are having difficulty answering this > question, good luck! PLAY NICE, PEPP

because it is producing the same NI over the life of the asset but your book value is declining at a constant rate.

Totally didn’t read on to the other options… yeah… C is pretty damn false since it doesn’t say anything about early years versus later years,etc.

under both methods, at the end of the assets life the Net income produced by the asset, and the depreciation assigned to the asset are the same different depreciation methods just allocate the cost of the asset over different time (or usage rate) periods

D is correct because the denominator keeps decreasing as the asset is depreciated while the return is more stable because the same amount of depreciation is deducted every year under SL, hence an increasing ROI

daj224 Wrote: ------------------------------------------------------- > strangedays Wrote: > -------------------------------------------------- > ----- > > getterdone Wrote: > > > -------------------------------------------------- > > > ----- > > > C is false > > > > > > NI and Deprciation are the same under both > > > methods, assuming same salvage value > > > > Just be carefull because this is the case at > the > > end of the depreciation period > > > WHAT DO YOU MEAN BY THIS? because at the beginning of the depreciatio period, the accelerated method results in lower NI since you depreciate more. However at the end of the depreciation period the amount you depreciate is the same (give the savage value is the same)