CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
A company reports the following PP&E data (in € millions): gross PP&E of 800 and accumulated depreciation of 320. Annual depreciation expense is 80. The average age of the PP&E is closest to:
The average age is about 4.0 years. It is calculated as accumulated depreciation of 320 divided by annual depreciation expense of 80. The figure of 10 years is the estimated total useful life (gross PP&E divided by depreciation), not the average age of the assets.
- A1.0 years
- B4.0 yearsCorrect
- C10.0 years
Explanation
Average age = accumulated depreciation / depreciation expense = 320 / 80 = 4.0 years. Using gross PP&E over depreciation (800/80 = 10) gives the total useful life, not the age.
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