CASE 96 Depreciation Accounting

Property, plant, and equipment (plant assets) generally represent a material portion of the total assets of most companies. Accounting for the acquisition and use of such assets is therefore an important part of the financial reporting process.

Required:

1. Distinguish between revenue and capital expenditures, and explain why this distinction is important.
2. Briefly define depreciation as used in accounting.
3. Identify the factors that are relevant in determining the annual depreciation, and explain whether these factors are determined objectively or whether they are based on judgment.
4. Explain why depreciation is shown as an adjustment to cash in the operations section on the statement of cash flows.