Question

The comparison of long-lived assets on the balance sheets of various companies is often made more difficult because different companies:

Select one:

a. Use different depreciation methods.

b. Choose different estimated asset lives.

c. Have made asset purchases long ago vs. more recently.

d. All of the above

e. None of the above

Answer 1

d ALL OF THE ABOVE. The comparison of long-lived assets on the balancesheets of various companies is often made more difficult because

1.different companies use different methods of depreciation like STRAIGHT LINE METHOD DIMNISHING BALANCE METHOD,SUM OF YEARS OF DIGIT METHOD etc. So the amount of depreciation vary as per each method.

2. Estimated life means the useful life or the year upto which the assets is profitable. Different companies estimation will be different so the value also will vary. So comparison become ineffective.

3. All assets of all companies may not be bought at same time. It will also be a problem while comparing. Some assets may be bought recently some long years ago. So there will be no uniformity and comparison become ineffective.