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hermela
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how depreciation and inflation are related?
on the first unit lecture the lecturer do that when inflation occur historic profit and current profit can be overstated and understated respectively because of increasing depreciation as the result of inflation.
P2-D2
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Hi,
The issue is that depreciation is based upon historic cost and does not therefore incorporate inflation into the expense each year through profit or loss, this can therefore make the profits look higher than they should as the depreciation charge is lower using historic cost.
Thanks
hermela
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