In the given income statement for problem 4.1, there is a balance for "Operating Depreciation" that is listed just below Cost of Goods Sold, and is thus incorporated into the listed Gross Income (which is before SG&A expenses). Is this depreciation the classic depreciation expense that is associated with Plant, Property, and Equipment? Or is this referring to depreciation of currently held inventory? Because we are requested to calculate some fixed asset ratios that ask for annual depreciation, we assumed that the listed "Operating Depreciation" refers to Plant, Property, and Equipment. However, I was taught this kind of depreciation is listed outside of the Gross Profit, which makes me think the depreciation applies to Inventory, not PP&E. Can you please clarify what this "Operating Depreciation" applies to?


This is a case of thinking too hard. There is a large variety of phrases used in different companies' financial statements. Wynn is simple enough that it would be safe to assume that operating depreciation pertains to PP&E alone, especially since PPE is listed as net. All of us hope that our inventory does not stick around long enough for it to depreciate!


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