Use the information below to answer the following questions:
Unstable Ltd has decided to change its depreciation method from straight-line to reducing balance, with the agreement of its auditors and taxation authorities. As a result, its annual depreciation expense increases by $200,000. The company’s income tax rate is 40%.
-Which of the following could NOT lead to an increase in debtors turnover?
A) receipt of cash from debtors
B) increase in selling price of goods
C) tighter credit controls
D) increase in cash sales.

Question

Use the information below to answer the following questions:
Unstable Ltd has decided to change its depreciation method from straight-line to reducing balance, with the agreement of its auditors and taxation authorities. As a result, its annual depreciation expense increases by $200,000. The company’s income tax rate is 40%. 
-Which of the following could NOT lead to an increase in debtors turnover?
A) receipt of cash from debtors
B) increase in selling price of goods
C) tighter credit controls
D) increase in cash sales.

Quizplus · Accepted Answer

Changing the depreciation method from straight-line to reducing balance and the increase in annual depreciation expense has no direct impact on debtors turnover. The other options could lead to an increase in debtors turnover: A) receipt of cash from debtors reduces the accounts receivable balance, leading to a higher debtors turnover ratio; B) an increase in selling price of goods could lead to faster collection of accounts receivable, increasing debtors turnover; and C) tighter credit controls could ensure that debts are collected more quickly, leading to an increase in debtors turnover.

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