Tuna Co. purchased a building in 2009 for $650,000 and debited an asset called "Buildings" for the entire amount. The company never depreciated the building although it had a useful life of 15 years. This action will cause:

Question

Quizplus · Accepted Answer

By not depreciating the building, the company is overstating its assets and consequently its net income. This is because depreciation is a non-cash expense that reflects the gradual decrease in value of the asset over its useful life. Therefore, the failure to depreciate the building will result in an overstatement of profit.

Tuna Co Purchased a Building in 2009 for $650,000 and Debited