CFA Practice Question

CFA Practice Question

In a given period, the firm's beginning gross investment is 4,000 and ending gross investment is 12,000. The accumulated depreciation at the beginning was 800 and the ending balance in this account was 900. The firm uses straight-line depreciation. The average age of the firm's assets at the end of the period is ______.
A. 5 years
B. 9 years
C. 13.3 years
Explanation: Average age = Accumulated depreciation/Depreciation expense.
Depreciation expense = 900-800 = 100. Hence, Avg. age = 900/100 = 9 years.

User Contributed Comments 3

User Comment
jpducros That is somewhat strange.
- If you look at ending BS, your gross asset value is 12.000 and your net asset value is 11.100, meaning that you are at the very beginning of the depreciation of your asset, so assets are almost new.
- If you look at the beginning BS, 20% of your gross value has been depreciated, so you are also at the very beginning of the use of your assets.
How come the firm can be 9 years old ?
jpducros ok, I guess it's still possible if the firm was already very old at the beginning, with very long depreciation rythm.
NIKKIZ The question mentions gross investment which might include other assets such as land. In that case, only the buildings on the land would be deppreciated.
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