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Depreciation and Amortisation - 11 Video Lecture - Crash Course for CA
FAQs on Depreciation and Amortisation - 11
| 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, providing a more accurate picture of financial performance.
| 2. What are the different methods of calculating depreciation? | |
Ans.The most common methods of calculating depreciation include Straight-Line Method, Declining Balance Method, and Units of Production Method. Each method has its own approach to allocating the cost of an asset, affecting financial statements differently.
| 3. How does depreciation impact financial statements? | |
Ans.Depreciation impacts financial statements by reducing the book value of assets on the balance sheet and decreasing net income on the income statement. This can affect key financial ratios and the overall financial health of a company.
| 4. What is the difference between book value and market value in relation to depreciation? | |
Ans.Book value is the value of an asset as recorded on the balance sheet after accounting for depreciation, whereas market value is the price at which an asset could be sold in the open market. Depreciation affects book value but not necessarily market value.
| 5. How can businesses choose the most appropriate depreciation method for their assets? | |
Ans.Businesses can choose the most appropriate depreciation method by considering factors such as the nature of the asset, its expected usage, tax implications, and the overall financial strategy. Each method has different impacts on cash flow and tax obligations.
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Apr 14, 2026 Last updated
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