Jefferies Depreciation Question 2027: 3-Statement Walkthrough

A depreciation expense reduces net income on the income statement, is added back on the cash flow statement, and reduces PP&E and retained earnings on the balance sheet. For this Jefferies three-statement question, commonly reported by candidates, walk through each statement in order and show the statements still balance — that is what the interviewer is really checking.

What Your Jefferies Depreciation Three Statements Must Prove

This is the classic accounting mechanics test: do you understand how the three statements link, or have you just memorised ratios? The interviewer wants a clean walkthrough — income statement to cash flow to balance sheet — with correct directional effects and the balancing logic at the end. Precision here signals your accounting foundation is solid.

How to Build a Strong Jefferies Depreciation Three Statements

• Step 1 — income statement: depreciation is a non-cash expense, so EBIT falls and net income falls by the after-tax amount (depreciation × (1 – tax rate)).
• Step 2 — cash flow statement: start from the lower net income, then add back the full depreciation (non-cash), so operating cash flow rises by the tax shield (depreciation × tax rate).
• Step 3 — balance sheet: PP&E falls by the depreciation amount (accumulated depreciation rises); retained earnings fall by the reduced net income; the balance sheet balances because the PP&E drop exceeds the retained earnings drop by exactly the cash increase from the tax shield — trace every dollar.

Example line: "If depreciation rises by $100 at a 25% tax rate: net income falls $75, operating cash flow rises $25 from the tax shield, PP&E falls $100 while retained earnings fall $75 — and the $25 cash increase makes the balance sheet balance."

Common Mistakes

• Forgetting the tax effect and saying net income falls by the full depreciation amount.
• Adding back depreciation on the cash flow statement but getting the direction of the net effect wrong.
• Not explaining why the balance sheet balances; the reconciliation is the real test.

Three-statement mechanics are non-negotiable in banking interviews — walk through one example with numbers before the day.

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FAQ

Do I need to use numbers?

Walking through with a simple $100 example and a tax rate shows mastery far better than words alone.

What is the tax shield exactly?

Depreciation reduces taxable income, so the company pays less tax — the cash saved is the depreciation amount times the tax rate.

What follow-ups come next?

Commonly reported follow-ups change the scenario: capex, working capital, or debt paydown through the statements.

Is this asked at every bank?

Three-statement questions are commonly reported by candidates across banks; formats may vary by role and region. Check the official careers page.

Preparing for Jefferies's interview? Our 2027 Jefferies Online Assessment (Situational Judgement Test and Cognitive Ability Assessment) Exact Questions and Answers has practice questions and answers — $79 one-time, instant download.