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Basic Question 0 of 3
A longer depreciable life will cause ______
II. depreciation expense to be higher each period.
III. more costs to be allocated each period.
IV. asset turnover ratios to be lower.
I. depreciation expense to be lower each period.
II. depreciation expense to be higher each period.
III. more costs to be allocated each period.
IV. asset turnover ratios to be lower.
User Contributed Comments 7
| User | Comment |
|---|---|
| gjwhite | Lower depreciation expense will cause the book value of assets to be higher each period than they would be otherwise. Therefore, (net sales)/assets has a larger denominator, hence, asset turnover is LOWER. |
| LogicMan | Agree with gjwhite. IV is also correct. |
| rainatt | low depreciation=higher asset=lower asset turnover |
| o123 | asset TO = Net sales / Avg Assets |
| atemple315 | Consider a depreciable life of 5 years (scenario A) vs 10 years (scenario B) on a asset valued at $10,000 with $0 salvage value. On a straight line depreciation basis:- Scenario A - the expense would be $2,000 per year (period)for 5 years; Scenario B - the expense would be $1,000 per year for 10 years; Whilst answer I is correct for the first 5 years of the assets life, it is incorrect for the second 5 years, under scenario B - I disagree with the answer I - as this states under "Each" period. What does anyone else think? |
| johntan1979 | atemple315: You think too much and too hard. $2,000 and $1,000, which one is lower? |
| davidkhang | @johntan1979 LOL |
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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.