Which of the following accurately describes how recording depreciation for an existing building would affect the ratios indicated?
A)Option A
B)Option B
C)Option C
D)Option D

Question

Which of the following accurately describes how recording depreciation for an existing building would affect the ratios indicated? 
A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

Depreciation is a non-cash expense that reduces the value of the asset over its useful life. As a result, depreciation expense would increase and reduce the profitability ratios such as return on assets (ROA) and return on equity (ROE) in Option A and Option D. In Option C, the asset turnover ratio would decrease, as the asset base would be reduced due to depreciation. However, in Option B, the fixed asset turnover ratio would increase as the denominator would be reduced due to the depreciation of the building.

Which of the Following Accurately Describes How Recording Depreciation for an Existing