Depreciation is especially applicable when companies try to overvalue their assets and net worth; the lower their depreciation expense, the higher the companys profits.
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A. B.A
The statement is generally true. Depreciation is a method of allocating the cost of an asset over its useful life. It is a non-cash expense that reduces the value of an asset over time, reflecting its decreasing value as it is used. When a company has a low depreciation expense, it means that they are either using assets for a longer period of time or they are overstating the value of their assets.
When a company overstates the value of its assets, it inflates its net worth, which can make the company appear more valuable than it actually is. This can be a way for companies to inflate their profits by making their assets appear to be worth more than they really are. In other words, if a company has lower depreciation expenses, it means that they are not expensing the full cost of their assets, and this leads to an overstatement of the company's profits.
However, it's important to note that not all companies that have lower depreciation expenses are necessarily trying to overvalue their assets. Some companies may have legitimately extended the useful life of their assets or may have acquired assets at a lower cost.
In conclusion, the statement is generally true, as companies may try to overvalue their assets and net worth by manipulating their depreciation expenses. However, it's important to look at the specific circumstances of each company to determine whether their lower depreciation expenses are a result of overvaluation or legitimate reasons.