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Depreciation and Amortisation - 3 Video Lecture - Crash Course for CA Foundation
FAQs on Depreciation and Amortisation - 3
| 1. What is depreciation and why is it important in accounting? |  |
Ans. Depreciation is the process of allocating the cost of a tangible asset over its useful life. It is important in accounting as it helps businesses match the cost of an asset with the revenue it generates over time, ensuring that financial statements accurately reflect the company's financial position.
| 2. What are the different methods of calculating depreciation? | |
Ans. The main methods of calculating depreciation include Straight-Line Method, Declining Balance Method, and Units of Production Method. Each method has its own formula and is chosen based on the nature of the asset and how it is used.
| 3. How does depreciation affect financial statements? | |
Ans. Depreciation affects financial statements by reducing the book value of assets on the balance sheet and expensing the depreciation amount on the income statement. This can impact the net income and overall profitability of a business.
| 4. What is the difference between book value and market value in relation to depreciation? | |
Ans. Book value refers to the value of an asset as recorded on the balance sheet after accounting for depreciation, while market value is the price at which the asset could be sold in the market. Depreciation can cause the book value to differ significantly from the market value.
| 5. Are there any tax benefits associated with depreciation? | |
Ans. Yes, businesses can benefit from tax deductions through depreciation. The depreciation expense reduces taxable income, allowing companies to lower their overall tax liability. However, it's essential to follow tax regulations and guidelines when calculating depreciation for tax purposes.
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Apr 13, 2026 Last updated
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