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Depreciation - Commerce PDF Download
Needed a Document for depreciation?
Ref: https://edurev.in/question/796549/Needed-a-Document-for-depreciation-Related-Accountancy-for-Class-11-XI-CBSE-and-NCERT-Curriculum
Definition: The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation.
Description: Depreciation, i.e. a decrease in an asset's value, may be caused by a number of other factors as well such as unfavorable market conditions, etc. Machinery, equipment, currency are some examples of assets that are likely to depreciate over a specific period of time. Opposite of depreciation is appreciation which is increase in the value of an asset over a period of time.
Accounting estimates the decrease in value using the information regarding the useful life of the asset. This is useful for estimation of property value for taxation purposes like property tax etc. For such assets like real estate, market and economic conditions are likely to be crucial such as in cases of economic downturn.
FAQs on Depreciation - Commerce
| 1. What is depreciation in commerce? |  |
Ans. Depreciation in commerce 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 on a company's financial statements to reflect the decrease in the asset's value.
| 2. How is depreciation calculated? | |
Ans. Depreciation can be calculated using various methods, such as straight-line depreciation, declining balance depreciation, or units of production depreciation. The most common method is the straight-line method, which involves dividing the cost of the asset by its useful life to determine the annual depreciation expense.
| 3. What is the purpose of depreciating assets in commerce? | |
Ans. Depreciating assets in commerce serves several purposes. Firstly, it helps allocate the cost of the asset over its useful life, matching the expense with the revenue it generates. Secondly, it reflects the wear and tear or obsolescence of the asset, providing a more accurate representation of its value on the financial statements. Lastly, it helps in determining the net book value of the asset over time.
| 4. Can depreciation have an impact on a company's taxes? | |
Ans. Yes, depreciation can have an impact on a company's taxes. In many tax jurisdictions, businesses are allowed to deduct the depreciation expense from their taxable income, reducing their tax liability. This deduction is often referred to as a depreciation tax shield and can result in significant tax savings for companies.
| 5. Are all assets subject to depreciation in commerce? | |
Ans. No, not all assets are subject to depreciation in commerce. Certain assets, such as land, are typically not depreciated as they are considered to have an indefinite useful life. However, most other assets, including buildings, machinery, vehicles, and equipment, are subject to depreciation as their value diminishes over time.
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Dec 25, 2024 Last updated |
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