Ignoring any tax implications what is the effect on a company's balance sheet when depreciation expense is recognized?
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Company’s balance sheet has two sides : Assets side and liabilities side.
If you recognise depreciation expense in your profit and loss account then there are two implications:
i. It will reduce the book value of the respective recorded asset
ii. Net profit will decline which will reduce the liability wrt to the depreciation amount.
Hence to conclude, if you’ll under depreciate any asset then the company’s assets and liabilities will be inflated.
If you recognise depreciation expense in your profit and loss account then there are two implications:
i. It will reduce the book value of the respective recorded asset
ii. Net profit will decline which will reduce the liability wrt to the depreciation amount.
Hence to conclude, if you’ll under depreciate any asset then the company’s assets and liabilities will be inflated.
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