What relation should expenditures for PPE have with depreciation expense?

Expert Solution

PPE (Property, Plant and Equipment) is Balance sheet assets line item, these are all non current assets which are used to generate future profits.

PPE is always denoted with net of depriciation (i.e Gross PPE-accumulated depreciation).

On the other hand, yearly depriciation is charged in the profit and loss account. The depriciation expenditure may increase or decrease based on the capital expenditure(purchase of new assets) or sale of existing assets.

The below are effects for depriciation with PPE expenditure,

If PPE has increased due to additional purchase of assets, the depreciation expenses also increases.
If PPE has sale of some existing assets, then the depriciation expenses will be reduced to the extant of sold assets.
If PPE is same and company charges stright line method of depreciation, then the every year depriciation will be same.
Generally Tangible assets have lower rate of depriciation then Intangible assets, so change is intangible assets have more impact on depriciation expenses (assumed tangible and intangible proportion is same).

ekkarill92 answered 1 year ago

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