Question

Even though plant and equipment are reported as long-term assets on the balance sheet, do they still have an impact on net income for the periods they are depreciated. True or False?

Answer 1

Plant and equipment have an impact on net income when they are depreciated.

Step-by-step explanation:

Even though plant and equipment are reported as long-term assets on the balance sheet, they still have an impact on net income for the periods they are depreciated. This statement is true.

Depreciation is the systematic allocation of the cost of plant and equipment over their useful lives. Each period, a portion of the asset's cost is expensed, which reduces net income.

For example, let's say a company has a machine with a cost of $100,000 and an estimated useful life of 5 years. If the company uses straight-line depreciation, it would expense $20,000 ($100,000 / 5) each year for the machine. This $20,000 expense would reduce net income for that period.