If a company forecasts that its capital expenditures will be smooth,then in forecasting depreciation,it is better to use the percentage of revenues approach than the percentage of property,plant,and equipment (PP&E )approach.

Question

Quizplus · Accepted Answer

If capital expenditures are smooth, the choice between the percentage of revenues approach and PP&E approach won’t matter. But if capital expenditures are lumpy, you will get better forecasts if you use PP&E as the forecast driver.

If a Company Forecasts That Its Capital Expenditures Will Be