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Basic Question 2 of 19
If a firm wishes to be conservative in its recognition of depreciation expense, which of the following is true?
II. Shorter lives should be used.
III. Lower salvage values should be used.
I. Higher salvage values should be used.
II. Shorter lives should be used.
III. Lower salvage values should be used.
User Contributed Comments 9
| User | Comment |
|---|---|
| kalps | SHORTER LIVES AND HIGHER SALVAGE VALUE = CONSERVATIVE |
| gjwhite | It is Lower Salvage Value (not higher)= conservative See top of p. 388 of White Sondhi and Fried. |
| LogicMan | yes, lower. the question is correct. |
| rainatt | conservative means more depreciation expenses |
| airborne | Kalps the answer is shorter life and LOWER salvage value |
| thud | Conservative = lower net income |
| viannie | conservative => reported income is lower => deprec expense is higher => achieved by shorter deprec. life & lower s.v. In addition, lower s.v. = a conservative approach besides getting a higher deprec. expense |
| quanttrader | sld = [(depreciable value - salvage value) / t)]. conservative = higher sld. |
| khalifa92 | higher depreciation amount higher conservatism higher tax deductibles |
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Learning Outcome Statements
analyze and interpret financial statement disclosures regarding property, plant, and equipment and intangible assets
CFA® 2025 Level I Curriculum, Volume 2, Module 7.