top of page

How does £10 increase in depreciation expense flow through the three financial statements❓

All the students who took our 8 weeks training program, 90% of them found internships and jobs. Please click here https://www.cityinvestmenttraining.com/ to learn more.


Check our popular ebook "Top 100 Investment Banking Questions with Answers".

Click here to get your copy: https://www.cityinvestmenttraining.com/blog

Fancy answering this accounting question asked in investment banking interviews❓


Probably one of the most oft-repeated questions some of our 8-week students get on their interviews is...


❓❓❓


How does £10 increase in depreciation expense flow through the three financial statements


Solution:🧪


🧾 Income Statement:


A £10 increase in dep expense should decrease net income by £10.


But hang on ✋


If we take taxes into consideration then @20% tax rate ..


..an increase of £10 dep expense will reduce the tax bill by £2 so..


Net Income will reduce by £8.


🧾 Balance Sheet


On Assets: 📠


PP&E will reduce by a further £10

Cash will go up by £2 given lower cash taxes

So total assets = -£8


On Liabilities: 🎰


Net income will be lower by £8 reducing retained earnings under Equity by £8


🧾 Cash Flow Statement:


Lower Net Income of £8

Higher D&A expenses of £10 will be added back to CFO given D&A is non-nash expense.

On a net basis, CFO will be higher by £2.


 

📣If you are a university student or a recent graduate looking to break into banking, make sure to check out our 8 week full-time or 12-week part-time investment banking training program.


We have a 90% success rate on our 8-week program with past students going on to work for some of the most prestigious Investment Banks, Private equity and Asset management companies in the world, including, JP Morgan, Goldman Sachs, UBS, Blackstone, Fidelity, and Schroders among many others.


✅ Please see below for more details on our 8-week investment banking program...


✅ For details on our part-time programs, click the link below..


95 views0 comments

Comments


bottom of page