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John Mark
John Mark , Accountant
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Please assist with this question #3 i do not understand. Thanks Brandywine

Resolved Question:

Please assist with this question #3 i do not understand. Thanks

Brandywine Homecare, a not-for-profit business, had revenues of$12 million in 2007. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5million. All revenues were collected in cash during the year and all expenses other than depreciation were paid in cash.

3. Suppose the company changed itsdepreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affectBrandywine’s net income, total profit margin, and cashflow?
Submitted: 6 years ago.
Category: Finance
Expert:  John Mark replied 6 years ago.
HI,

Thanks XXXXX a not-for-profit business, had revenues of$12 million in 2007. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5million. All revenues were collected in cash during the year and all expenses other than depreciation were paid in cash. 3. Suppose the company changed itsdepreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affectBrandywine’s net income, total profit margin, and cashflow?

ORIGINAL NET INCOME
= 12m - 9m - 1.5m = 1.5 m
REVISED NET INCOME
= 12m - 9m - 3m = no income

ORIGINAL PROFIT MARGIN
= 1.5m/12m = 12.5%
REVISED PROFIT MARGIN
= 0m/12m = 0%

There will be no impact on cashflow as depreciation in non cash expenditure and any increase or decrease in depreciation doesnot impact cash flows or company.,
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