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Depreciation - 2 Video Lecture | Crash Course for CA Foundation
FAQs on Depreciation - 2 Video Lecture - Crash Course for CA Foundation
| 1. What is depreciation and why is it important in accounting? |  |
Ans.Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It is important in accounting because it helps businesses match expenses to revenues, thus providing a more accurate representation of financial performance. Depreciation also affects tax calculations, as it can reduce taxable income.
| 2. What are the different methods of calculating depreciation? | |
Ans.The most common methods of calculating depreciation include the straight-line method, declining balance method, and units of production method. The straight-line method spreads the cost evenly over the asset’s useful life, while the declining balance method accelerates depreciation in the earlier years. The units of production method bases depreciation on the asset's usage.
| 3. How does depreciation affect financial statements? | |
Ans.Depreciation affects financial statements by reducing the book value of assets on the balance sheet and decreasing net income on the income statement. This reduction in net income can also affect key financial ratios, which are important for investors and creditors in assessing the company's financial health.
| 4. Can depreciation be calculated for intangible assets? | |
Ans.Depreciation is applicable to tangible assets, but intangible assets are subject to amortization. Amortization is similar to depreciation in that it allocates the cost of an intangible asset over its useful life. However, the methods and terms may differ between tangible and intangible assets.
| 5. What is the impact of depreciation on tax liability? | |
Ans.Depreciation can significantly impact a company's tax liability. Since depreciation reduces taxable income, it lowers the amount of taxes owed. Companies can take advantage of various depreciation methods to optimize their tax positions, ensuring they pay the least amount of tax legally permissible.
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Dec 22, 2024 Last updated |
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