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Depreciation and Amortisation - 14 Video Lecture - Crash Course for CA
FAQs on Depreciation and Amortisation - 14
| 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 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 depreciation, 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 the financial strategy of the business.
| 3. How does depreciation affect a company's financial statements? | |
Ans.Depreciation affects a company's financial statements by reducing taxable income, thereby affecting the income statement. It also reduces the asset's book value on the balance sheet, reflecting the wear and tear of the asset over time.
| 4. Can a business choose its depreciation method? | |
Ans.Yes, a business can choose its depreciation method based on its financial reporting needs and tax strategy. However, once a method is chosen, it should be applied consistently unless a change is justified and disclosed.
| 5. 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, while market value is the price at which the asset could be sold in the current market. Depreciation affects book value but not necessarily market value.
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Apr 20, 2026 Last updated
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