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General Electric (GE) depreciates its fixed assets using a method that recognizes a relatively large portion of

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General Electric (GE) depreciates its fixed assets using a method that recognizes a relatively large portion of depreciation in the early years of an asset’s useful life. IBM, on the other hand, uses the straight-line method.
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Briefly describe the adjustments an investor would have to make when comparing GE’s performance and financial position to that of IBM.

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Financial Accounting in an Economic Context

Financial Accounting in an Economic Context

ISBN: 978-0470635292

8th Edition

Authors: Jamie Pratt

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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue

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