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Basic Question 2 of 20

If a firm wishes to be conservative in its recognition of depreciation expense, which of the following is true?

I. Higher salvage values should be used.
II. Shorter lives should be used.
III. Lower salvage values should be used.
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User Contributed Comments 9

User Comment
kalps SHORTER LIVES AND HIGHER SALVAGE VALUE = CONSERVATIVE
gjwhite It is Lower Salvage Value (not higher)= conservative See top of p. 388 of White Sondhi and Fried.
LogicMan yes, lower. the question is correct.
rainatt conservative means more depreciation expenses
airborne Kalps the answer is shorter life and LOWER salvage value
thud Conservative = lower net income
viannie conservative => reported income is lower => deprec expense is higher => achieved by shorter deprec. life & lower s.v.

In addition, lower s.v. = a conservative approach besides getting a higher deprec. expense
quanttrader sld = [(depreciable value - salvage value) / t)]. conservative = higher sld.
khalifa92 higher depreciation amount higher conservatism higher tax deductibles
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Learning Outcome Statements

describe the different depreciation methods for property, plant, and equipment and calculate depreciation expense;

describe how the choice of depreciation method and assumptions concerning useful life and residual value affect depreciation expense, financial statements, and ratios;

CFA® 2024 Level I Curriculum, Volume 3, Module 23.