How does a firm select the depreciation method

Related BrainMass Solutions

• Is it appropriate to calculate depreciation using two different methods?

  The consistency principle does require that once a method has been adopted for a particular type of asset, the firm must continue to use that method over time.

• Straight line and Double declining method of depreciation

  However, if the firm does not have adequate operating profits in the year 2005, it should opt for straight-line method to improve its profitability for the investors and shareholders.

• Accounting Questions

  What benefit does a firm receive from securitization of assets such as accounts receivables? How does that impact the cash flow of a firm?

• Finance questions

  How large a cash flow benefit did the depreciation provide? d. Would the president of a firm on the New York Stock Exchange likely be satisfied with the earnings after taxes results in part c? 5.

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  95260 What are at least four depreciation methods 1) What are at least four depreciation methods that are available to a company? 2) What are the similarities and differences? 3) Why does a company select one method over another? 1.

• Straight-line or MACRS depreciation

  226127 Cash Flows We've emphasized that the firm should pay attention only to cash flows when assessing the net present value of proposed projects. Depreciation is a non-cash expense.

• Pro forma income statements assuming new assets are purchased

  How does the use of the different depreciation methods affect the behavior of the ratios over the period? Which method would management choose to maximize their personal wealth? ANSWERS Please see attached file for answers.

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  Double-declining method: The method determines depreciation by multiplying the asset value by the depreciation factor. The depreciation factor is determined through 2/(Asset life in years). 8.

• What is the purpose of depreciation? How does book value relate to asset worth?

  408999 What is the purpose of depreciation? How does book value relate to asset worth? What is the purpose of depreciation? Does the book value of a fixed asset (cost minus accumulated depreciation) communicate to a user what the asset is worth?

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  The choice of depreciation method has no impact on a firm's value because the same amount of depreciation is taken over the life of an asset regardless of the method used D.