{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch6 - Depreciation and Financial Accounting Reasons for...

Info icon This preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
Reasons for Depreciation Estimates: Financial statements Estimation of salvage values Example 6-1. Assets lose value for a variety of reasons. Give an example for each of the following types of reasons: use-related physical loss time-related physical loss functional loss Example 6-2. Give an example of an asset that might NOT lose value over time. Depreciation and Financial Accounting
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
Normal use of depreciation as an "expense" instead of actual cash flow Consider 10 years of income statements (simplified) for a company that must replace its equipment every 5 years @ $120 thousand A. Income Statement, with Depreciation Approach (thousands of $) Year Revenues 1 2 3 4 5 6 7 8 9 10 Net Revenue from Sales 100 100 100 100 100 100 100 100 100 100 Expenses Operating Expenses 60 60 60 60 60 60 60 60 60 60 Depreciation Expenses 24 24 24 24 24 24 24 24 24 24 Total Expenses 84 84 84 84 84 84 84 84 84 84 Profit Before Taxes 16 16 16 16 16 16 16 16 16 16 Profit is steady in time: company performs just as well in every year.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
What is never done, because it is misleading.
Image of page 4