Lessons
- Capitalizing Vs. Expensing Costs
- Financial Reporting of Intangible Assets
- Depreciation Methods for Property, Plant, and Equipment (PPE)
- Impact of Depreciation Methods on Financial Statements
- Depreciation – Important Points
- Amortization of Intangible Assets
- Revaluation Model for Fixed Assets
- Impairment of Long-lived Assets
- Impact of Asset Impairment
- Derecognition of PPE and Intangible Assets
- Disclosures Related to PPE and Intangible Assets
- Financial Reporting of Investment Property Vs. PPE
Impact of Depreciation Methods on Financial Statements
The table below summarizes the early year impacts on selected financial reporting items by choosing the straight-line method versus an accelerated depreciation method.
| ITEM IMPACTED | STRAIGHT-LINE | ACCELERATED |
| Earnings, Equity, Profit Margins | Higher, as depreciation expense is lower in early years. | Lower, as depreciation expense is higher in early years. |
| Current Ratio | No impact because the current ratio relates to short-term assets. | No impact because the current ratio relates to short-term assets. |
| Total Pre-Tax Cash Flow | No change. | No change. |
| Asset Turnover | Lower, as asset values are higher in the early years. | Higher, as asset values are depreciated up front. |
| Debt-to-Equity Ratio | Lower, as equity is higher driven by higher earnings in the early years. | Higher, as equity is lowered in the early years with an elevated depreciation expense. |
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