Question

The depreciable life of an asset is of concern to the financial manager. In general:_______.a) a longer depreciable life is preferred, because it will result in a faster receipt of cash flows. b) a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows. c) a shorter depreciable life is preferred, because management can then purchase new assets, as the old assets are written off. d) a longer depreciable life is preferred, because management can postpone purchasing new assets, since the old assets still have a useful life.

Answer 1

The depreciable life of an asset is of concern to the financial manager. In general "a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows".

Answer: Option B

Explanation:

An accounting mechanism by which the expense of a financial or intangible resource is spread over its usable life or life expectancy is understood as "Depreciation". Depreciation symbolizes how much of the value of an asset has been used up. For both tax and accounting purposes, businesses can depreciate long-term assets. The duration over which an asset is depreciated is understood as depreciable life, which have capacity to significantly affect the flow of cash. Thus a shorter depreciable life is considered over longer one due to faster receipt of cash flow by finance manager.