An increase in reported net profit in the short term will occur from:
A) overestimating the useful life of a non-current asset
B) writing off supplies that are still on hand as an expense
C) underestimating the residual value of a depreciable asset
D) choosing the reducing balance rather than the straight-line method of depreciation

Question

Quizplus · Accepted Answer

Overestimating the useful life of a non-current asset will result in lower depreciation expense and therefore a higher reported net profit in the short term. However, this is not a sustainable practice as it will ultimately result in a larger expense when the asset needs to be replaced. Writing off supplies that are still on hand and underestimating the residual value of a depreciable asset will both result in lower reported net profit in the short term. Choosing the reducing balance method of depreciation will result in higher depreciation expense and therefore lower reported net profit in the short term.

An Increase in Reported Net Profit in the Short Term