On page 110 of the FRA book: Question 2 asks which of the following effects a change in depreciation method from straight line to accelerated depreciation is correct: a)Net profit margin decreases b)total asset turnover increases c)cash flow from op activities increases The correct answer is c which I agree with however I don’t understand why the other two options are incorrect. For A, wouldn’t a change to accelerated dep increase dep expense thus decreasing net income and as a result net profit margin? And for B, since you are depreciating your assets at a faster rate, wouldnt your asset base get smaller thus increasing total asset turnover? Any clarification on this would be great. Thanks.
Sorry. Just realized there was an errata released for this question.