How competitors calculate depreciation is most likely to affect comparisons between competitors if property, plant and equipment:
A) makes up a large percentage of assets and average useful lives are fairly different.
B) makes up a small percentage of assets and assets are financed in a different way.
C) makes up a small percentage of assets and average useful lives are fairly similar.
D) is primarily leased in the industry, not purchaseD.
Different accounting methods for depreciation are likely to have a major impact on the comparability of financial ratios among competitors if property, plant, and equipment make up a large portion of total assets and the companies use a varying range of estimated useful lives for buildings and equipment.

Question

Quizplus · Accepted Answer

The differences in how competitors calculate depreciation will have a greater impact on comparisons if property, plant, and equipment make up a large percentage of assets and the average useful lives are fairly different. This is because the depreciation expense will be a significant portion of operating expenses for these companies, and differences in its calculation will have a larger impact on their financial ratios.

How Competitors Calculate Depreciation Is Most Likely to Affect Comparisons