why accelerated depreciation method is more conservative than straight line? why sale of AR iwth partial recourse and guarantees of unconsolidated subsidiary debt is more aggressive? Thanks.
i would assume accelerated depreciation is more conservative because your earnings are less than if you used straight line, so clearly they are not trying to increase earnings. sale of AR with partial recourse is more aggressive because while you sold them off and decreased the assets and increased net income, you are still liable for the receivables if they don’t get collected. so they should be added back. guarantees of unconsolidated subsidiary debt one i have no clue i know this is from the 2009 mock because i was just doing it.
I could understand sale of AR will decrease asset, why it will increase NI? is operating lease less conservative than capital lease? if convert an operating lease to capital lease, will it increase both asset and liability (same amount) and reduce NI (because of depreciation)? Thanks. vinniepaz730 Wrote: ------------------------------------------------------- > i would assume accelerated depreciation is more > conservative because your earnings are less than > if you used straight line, so clearly they are not > trying to increase earnings. > > sale of AR with partial recourse is more > aggressive because while you sold them off and > decreased the assets and increased net income, > you are still liable for the receivables if they > don’t get collected. so they should be added > back. > > guarantees of unconsolidated subsidiary debt one > i have no clue > > i know this is from the 2009 mock because i was > just doing it.
Yea thats level 1 stuff man, to normalize/adjust stuff, you always capitalize the lease to make it more realistic, so you increase assets/liabilities, take off the lease expense, but you add in depreciation expense+interest on the PV of the lease . You increase asset/liability by the PV of future lease payments. there was a whole chapter on this for level 1.