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Methods of Recording Depreciation Video Lecture | Accountancy Class 11 - Commerce

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FAQs on Methods of Recording Depreciation Video Lecture - Accountancy Class 11 - Commerce

1. What is depreciation and why is it important for businesses to record it?
Ans. Depreciation is the systematic allocation of the cost of an asset over its useful life. It is important for businesses to record depreciation because it allows them to accurately reflect the wear and tear, obsolescence, or loss of value of their assets. By recording depreciation, businesses can match the cost of using the asset with the revenue it generates, providing a more accurate representation of their financial performance.
2. What are the different methods of recording depreciation?
Ans. There are several methods of recording depreciation, including the straight-line method, declining balance method, and units of production method. - The straight-line method evenly distributes the cost of an asset over its useful life. - The declining balance method allocates a higher depreciation expense in the earlier years of an asset's life and gradually decreases it over time. - The units of production method bases depreciation on the actual usage or production output of the asset.
3. How does the choice of depreciation method affect a company's financial statements?
Ans. The choice of depreciation method can have an impact on a company's financial statements. For example, using the straight-line method may result in a more stable and predictable depreciation expense, which can provide a clearer picture of the company's financial performance over time. On the other hand, using the declining balance method may result in higher depreciation expenses in the earlier years, which can reduce taxable income and provide tax benefits. Ultimately, the choice of depreciation method should align with the company's accounting policies and objectives.
4. Can a company change the depreciation method used for an asset?
Ans. Yes, a company can change the depreciation method used for an asset, but it should be done in accordance with the accounting standards and principles. Any change in depreciation method should be disclosed in the financial statements and clearly explained, including the reasons for the change and its impact on the company's financial results. This helps ensure transparency and consistency in the company's financial reporting.
5. How does recording depreciation affect a company's taxes?
Ans. Recording depreciation can have tax implications for a company. In many jurisdictions, businesses are allowed to deduct depreciation expenses from their taxable income, reducing the amount of tax they owe. The depreciation method used can impact the timing and amount of these deductions. For example, using the declining balance method may result in higher depreciation expenses in the earlier years, leading to larger tax deductions. However, it is important for companies to consult with tax professionals or accountants to understand the specific tax regulations and implications related to recording depreciation.
82 videos|105 docs|42 tests

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