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Depreciation and Amortisation - 8 Video Lecture - Crash Course for CA Foundation
FAQs on Depreciation and Amortisation - 8
| 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 because it helps businesses accurately reflect the value of their assets on their financial statements and ensures that expenses are matched with revenues in the period they are incurred.
| 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 the depreciation expense in the earlier years, and the Units of Production Method bases depreciation on the actual usage of the asset.
| 3. How does depreciation affect financial statements? | |
Ans. Depreciation affects financial statements by reducing the book value of assets on the balance sheet and recording an expense on the income statement. This can impact net income and taxable income, thereby influencing a company's overall financial health and tax obligations.
| 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, which decreases over time due to depreciation. Market value, on the other hand, is the amount the asset could be sold for in the open market and may not necessarily reflect the book value, especially if the asset has appreciated in value or has market demand.
| 5. Can depreciation be reversed or adjusted? | |
Ans. Depreciation cannot be reversed, but it can be adjusted under certain circumstances. For instance, if an asset's useful life or residual value changes, a company may need to recalculate future depreciation expenses. Additionally, when an asset is sold, any accumulated depreciation may impact the gain or loss recognized on the sale.
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Apr 19, 2026 Last updated
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