“Once a company has written down an asset, that loss no longer trickles down to the bottom line in the form of depreciation expense. Suppose you have a mine written down to zero, because operations provide effectively zero return at lower prices, but the company keeps mining because management believes prices will go up, and mine closure would be both expensive and hard to reverse. Then prices do rise, and the mine starts making money hand over fist, with no depreciation to impact net income. That’s why it’s so important to separate still-viable assets that are written down from those that really were based on foolish assumptions and are never likely to be profitable.”
http://www.caseyresearch.com/cdd/write-downs-death-sentence-or-opportunity
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