Hello all, Can someone please help me. What is the impact of change in depreciation policy on cash flow? Say, a company changes from straight line method of depreciation to accelerated method of depreciation. Then, what would be the impact on cash flow?

Question

sweta · Answer

I think impact will be on tax shield on depreciation if such change is permitted under tax laws otherwise I don't think there will be any impact on cash flows. If wrong, seniors please correct.

anonymous · Answer

remember depreciation is not cash :) So there should be no effect on CFO. However, the timing of the cash flows may differ due to taxes. You have accelerated depreciation you pay less tax the current year but eventually you will pay the same amount of taxes regardless of the depreciation policy unless there are certain tax rules that allow you deduct after certain benchmark or there is a change in tax policy.