Question

Depreciation expense is a noncash sunk cost that has no effect on future cash flow.

TRUE OR FALSE

Answer 1

FALSE.

DEPRECIATION EXPENSES IS NON CASH SUNK COST THAT HAS EFFECT ON FUTURE CASH FLOW.DEPRECIATION IS CONSIDERD AS NON CASH EXPENSES , SINCE IT IS SIMPLY AN ONGOING CHARGE TO THE CARRYING AMOUNT OF FIXED ASSETS, DESIGNED TO GRADUALLY REDUCE THE RECORDED COST OF THE ASSETS OVER ITS USEFUL LIFE. WHILE CALCULATING CASH FLOWS WHEN DEPRECIATTION IS TREATED AS CHARGE TO PROFIT AND IF DEPRECIATION IS ALLOWABLE EXPENSE FOR THE PURPOSE OF CALCULATING TAXABLE INCOME , THEN ITS PRESENCE REDUCE THE AMOUNT OF INCOME TAX THAT A COMPANY MUST PAY . THUS DEPRICIATION AFFECT CASH FLOW BY REDUCING THE AMOUNT OF CASH A BUSINESS MUST PAY IN INCOME TAXES.