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Depreciation and Amortisation - 5 Video Lecture - Crash Course for CA Foundation
FAQs on Depreciation and Amortisation - 5
| 1. What is the difference between depreciation and amortisation? |  |
Ans.Depreciation refers to the allocation of the cost of tangible fixed assets over their useful life, while amortisation pertains to the gradual writing off of intangible assets over a specific period. In summary, depreciation applies to physical assets like machinery and buildings, whereas amortisation applies to non-physical assets like patents and trademarks.
| 2. How is the straight-line method of depreciation calculated? | |
Ans.The straight-line method of depreciation is calculated by taking the cost of the asset, subtracting its salvage value (the estimated value at the end of its useful life), and dividing the result by the asset's useful life in years. The formula is: (Cost - Salvage Value) / Useful Life = Annual Depreciation Expense.
| 3. What are the common methods of calculating depreciation? | |
Ans.Common methods of calculating depreciation include the straight-line method, declining balance method, units of production method, and sum-of-the-years' digits method. Each method has its own approach to allocating the cost of an asset over time, depending on the usage and wear of the asset.
| 4. Why is amortisation important for businesses? | |
Ans.Amortisation is important for businesses as it helps in expense allocation over time, reflecting the consumption of intangible assets. This process aligns expenses with revenue generation, providing a clearer picture of profitability and helping businesses comply with accounting standards.
| 5. How does depreciation affect a company's financial statements? | |
Ans.Depreciation affects a company's financial statements by reducing the book value of assets on the balance sheet and impacting net income on the income statement. It is a non-cash expense, which means it reduces taxable income, potentially resulting in tax savings for the business.
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Apr 17, 2026 Last updated
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