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Depreciation Video Lecture - Commerce
FAQs on Depreciation Video Lecture - Commerce
| 1. What is depreciation and how does it affect businesses? |  |
Ans. Depreciation is the gradual decrease in the value of an asset over time. It is a non-cash expense that businesses record on their financial statements to reflect the wear and tear, obsolescence, or age-related decline of their assets. Depreciation affects businesses by reducing their taxable income, improving cash flow, and allowing them to allocate costs over the useful life of an asset.
| 2. What methods are commonly used to calculate depreciation? | |
Ans. There are several methods to calculate depreciation, including straight-line depreciation, declining balance depreciation, units of production depreciation, and sum-of-years' digits depreciation. Straight-line depreciation evenly distributes the cost of an asset over its useful life, while declining balance depreciation front-loads the depreciation expense. Units of production depreciation considers the asset's usage, and sum-of-years' digits depreciation allocates higher depreciation in the earlier years of an asset's life.
| 3. How does depreciation impact financial statements? | |
Ans. Depreciation impacts financial statements by reducing the value of an asset on the balance sheet, increasing expenses on the income statement, and decreasing the net income. It also affects the cash flow statement as it is a non-cash expense. By accurately reflecting the decline in value of assets, depreciation provides a more accurate representation of a company's financial position and performance.
| 4. Can depreciation be claimed for all types of assets? | |
Ans. No, depreciation can only be claimed for assets that have a determinable useful life and are expected to be used in the business for more than one year. Land, since it does not have a limited useful life, cannot be depreciated. However, buildings, vehicles, machinery, equipment, and other tangible assets can be depreciated over their useful lives.
| 5. Are there any tax regulations or guidelines for depreciation? | |
Ans. Yes, tax regulations and guidelines determine how businesses can depreciate their assets for tax purposes. Each country may have its own specific rules, including allowed depreciation methods, useful life estimates, and depreciation rates for different types of assets. It is important for businesses to understand and comply with these regulations to accurately calculate depreciation and properly report it on tax returns.
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Dec 23, 2024 Last updated |
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