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Accounting Test Time: Depreciation Video Lecture - Commerce
FAQs on Accounting Test Time: Depreciation Video Lecture - Commerce
| 1. What is depreciation in accounting? |  |
Depreciation in accounting refers to the systematic allocation of the cost of an asset over its useful life. It recognizes that assets lose their value over time due to wear and tear, obsolescence, or other factors. Depreciation allows businesses to spread the cost of an asset over its useful life, matching the expense with the revenue it helps generate.
| 2. How is depreciation calculated? | |
Depreciation can be calculated using various methods such as straight-line depreciation, declining balance depreciation, or units of production depreciation. The most commonly used method is the straight-line method, which divides the cost of the asset by its useful life to determine the annual depreciation expense. For example, if an asset costs $10,000 and has a useful life of 5 years, the annual depreciation expense would be $2,000 ($10,000 / 5).
| 3. Can land be depreciated in accounting? | |
No, land is generally not depreciated in accounting as it is considered to have an indefinite useful life and its value is expected to appreciate over time. Land is classified as a non-depreciable asset because it does not wear out or become obsolete. However, any improvements made to the land, such as buildings or fences, can be depreciated.
| 4. What is the difference between depreciation and amortization? | |
Depreciation and amortization are both methods of allocating the cost of an asset, but they are used for different types of assets. Depreciation is used for tangible assets, such as buildings, vehicles, or machinery, while amortization is used for intangible assets, such as patents, copyrights, or trademarks. The main difference is that depreciation refers to the decline in value of a physical asset, while amortization refers to the gradual reduction in value of an intangible asset over its useful life.
| 5. Can depreciation be reversed or adjusted in accounting? | |
Depreciation is a non-cash expense that represents the allocation of an asset's cost, and once recorded, it is not typically reversed or adjusted. However, if there is a change in the estimated useful life or residual value of an asset, the depreciation expense can be adjusted going forward. Additionally, if an asset is sold or disposed of before its useful life is complete, any remaining undepreciated cost is recorded as a gain or loss on disposal.
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Dec 23, 2024 Last updated |
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