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Depreciation : Class - 11 Accounts Video Lecture - Commerce
FAQs on Depreciation : Class - 11 Accounts Video Lecture - Commerce
| 1. What is depreciation? |  |
Ans. Depreciation refers to the decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. It is a non-cash expense that is recorded in the financial statements to reflect the reduction in the asset's value.
| 2. How is depreciation calculated? | |
Ans. Depreciation can be calculated using various methods such as straight-line method, reducing balance method, and sum-of-the-years' digits method. The most commonly used method is the straight-line method, where depreciation expense is calculated by dividing the cost of the asset by its useful life.
| 3. Why is depreciation important in accounting? | |
Ans. Depreciation is important in accounting as it helps in matching the cost of an asset with the revenue it generates over its useful life. It allows businesses to allocate the cost of an asset over its useful life, thereby providing a more accurate representation of the asset's value and the company's financial performance.
| 4. What is the difference between depreciation and amortization? | |
Ans. Depreciation and amortization are both methods used to allocate the cost of assets over time. However, depreciation is used for tangible assets such as buildings, machinery, and vehicles, while amortization is used for intangible assets such as patents, copyrights, and trademarks.
| 5. How does depreciation affect a company's financial statements? | |
Ans. Depreciation affects a company's financial statements by reducing the value of the asset on the balance sheet and increasing the depreciation expense on the income statement. This, in turn, reduces the company's net income and taxable income, resulting in lower taxes. Additionally, depreciation is also taken into account when calculating the company's cash flow statement.
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Dec 19, 2024 Last updated |
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