Question

Last year Ace charged $1,466,667 Depreciation on the Income Statement of Andrews. If early this year Ace purchased a new depreciable asset, the effect on Andrews's financial statements would be (all other items remaining equal):
a) No impact on Net Cash from operationsb) Increase Net Cash from operationsc) Decrease Net Cash from operations on the Cash Flow Statementd) Just impact the Balance Sheet

Answer 1

Answer:

Correct option is d)

Explanation:

Assuming all other things same as that of last year, with purchase of new asset, depreciation expense will increase, with that net income from operations will decrease, in cash flow statement when such depreciation will be added back then the net income from operations will decrease accordingly, therefore, there will be no impact of increase in depreciation on cash flow from operations.

Further such purchase of new asset will increase the balance of fixed assets in balance sheet and therefore, will only impact on balance sheet.

Thus correct option is d)