0
It depends on the kind of business that they have. Companies owning assets that decline in usefulness early may want to use the double declining method and others may want to use the straight line method. Also for tax purposes, the straight line method is preferred.
Wiki User
∙ 15y ago
Wiki User
∙ 14y agoThey use Straight Line Depreciation because it is the easiest. If they choose to use Double-Declining Balanc or Sum-of-the-Year's-Digits, it's because they expect the productivity to be greatest in the early years of use. Units-of-Production is used when the usage of a fixed asset varies greatly from year to year. The Modified Accelerated Cost Recovery System is used for tax purposes.
Add your answer:
Earn +20 pts
Why is depreciation necessary?
Depreciation is an incentive for investment in equipment. It encourages businesses to buy equipment that will be used to provide employment.Depreciation is effectively a tax credit. It reduces the profits and therefore the taxes due.Depreciation cost is a term used to account for the loss of value in an item over time. There are four methods of depreciation that are approved for use under the generally accepted accounting principles or GAAP. The most commonly used methods are straight-line depreciation, declining balance and percentage of use.
What is included in the cost basis of a long lived asset?
Depreciation is the process of reducing the historical cost of an asset by an annual amount relating to the amount of asset usage. [ Most assets are recorded at historical costs by accounting departments; based on the type of asset, certain methods must be used to reduce the value of the asset each year. Depreciation affects the company financial statements, moving the depreciation amount from the asset value on the balance sheet to the depreciation expense on the income statement. GAAP Methods Several methods of depreciation are used to record the depreciation expense on the accounting books. The most popular methods include: Straight-Line: This is the simplest depreciation method; it is calculated by subtracting the asset salvage value from the asset's historical cost, then dividing the remaining amount by the useful years of the asset. This creates a constant amount for companies to depreciate each year. Declining Balance: The declining balance method is used for assets with shorter life spans for a company. This allows companies to deduct higher depreciation amounts early in the asset life and lower amounts as the asset is phased out of the company. Companies will usually determine what percentage of the asset will be used each year and multiply it by the asset value to determine annual depreciation. Units of Production: Manufacturing companies may use this method for assets used for production purposes only. It is calculated by subtracting the salvage value from the historical asset cost; this amount is then divided by the total unit production of the machine to get a per-unit depreciation amount. Each month, the units produced are multiplied by the per-unit depreciation amount to calculate the expense. Tax Method When calculating depreciation for U.S. tax purposes, all assets entered into service by a company after 1986 must use the Modified Accelerated Cost Recovery System (MACRS). The Internal Revenue Service (IRS) provides asset classes for companies to determine the useful life and asset salvage value for tax purposes.
Do you have to use the same depreciation for accounting and tax?
Tax department has developed theire own depreciation schedules for different assets class and use their own depreciations rather than using accounting depreciation and due to this accounting depreciation difference there is also difference in tax we pay and tax we calculate and called "Deffered Taxation"
Distinguish between depreciation policy and the concept of depreciation?
Depreciation policy is management thing that what depreciation method to use and how much depreciation to charge to each asset. Depreciation concepts are concepts which govern the depreciation process which management cannot change they are universal rules to follow depreciation that how straight line depreciation work etc.
Why depreciation occur?
Depreciation is due to general wear and tear in the assets which we use in our business. As we use the assets in business that's why it's natural that assets should lose its value after few years of use and in the end we eventually discard the asset and purchase the new one so despite deducting the whole amount of asset value at the year of discarding the asset we gradually depreciate the value of asset by using different depreciation methods to allocate the cost of asset to the whole life of the business under which that asset was used.Depreciation can be due to obsolescence or changes in market or effluxion of time besides wear and tear.
What are production strategies?
Production strategies that companies can use is chase strategy, level production, make to stock, make to order, and assemble to order. Different companies use different methods depending on their goals.
Why do many companies use accelerated depreciation in computing taxable income?
approximately 12.4786994598 exceeding
Why is depreciation necessary?
Depreciation is an incentive for investment in equipment. It encourages businesses to buy equipment that will be used to provide employment.Depreciation is effectively a tax credit. It reduces the profits and therefore the taxes due.Depreciation cost is a term used to account for the loss of value in an item over time. There are four methods of depreciation that are approved for use under the generally accepted accounting principles or GAAP. The most commonly used methods are straight-line depreciation, declining balance and percentage of use.
What is included in the cost basis of a long lived asset?
Depreciation is the process of reducing the historical cost of an asset by an annual amount relating to the amount of asset usage. [ Most assets are recorded at historical costs by accounting departments; based on the type of asset, certain methods must be used to reduce the value of the asset each year. Depreciation affects the company financial statements, moving the depreciation amount from the asset value on the balance sheet to the depreciation expense on the income statement. GAAP Methods Several methods of depreciation are used to record the depreciation expense on the accounting books. The most popular methods include: Straight-Line: This is the simplest depreciation method; it is calculated by subtracting the asset salvage value from the asset's historical cost, then dividing the remaining amount by the useful years of the asset. This creates a constant amount for companies to depreciate each year. Declining Balance: The declining balance method is used for assets with shorter life spans for a company. This allows companies to deduct higher depreciation amounts early in the asset life and lower amounts as the asset is phased out of the company. Companies will usually determine what percentage of the asset will be used each year and multiply it by the asset value to determine annual depreciation. Units of Production: Manufacturing companies may use this method for assets used for production purposes only. It is calculated by subtracting the salvage value from the historical asset cost; this amount is then divided by the total unit production of the machine to get a per-unit depreciation amount. Each month, the units produced are multiplied by the per-unit depreciation amount to calculate the expense. Tax Method When calculating depreciation for U.S. tax purposes, all assets entered into service by a company after 1986 must use the Modified Accelerated Cost Recovery System (MACRS). The Internal Revenue Service (IRS) provides asset classes for companies to determine the useful life and asset salvage value for tax purposes.
What methods did fords competitors use to attract customers?
Companies like General Motors made cars as well, except, the cars were all different models with different additions to them.
Do you have to use the same depreciation for accounting and tax?
Tax department has developed theire own depreciation schedules for different assets class and use their own depreciations rather than using accounting depreciation and due to this accounting depreciation difference there is also difference in tax we pay and tax we calculate and called "Deffered Taxation"
Why do many companies use straight-line depreciation for financial reporting?
Simplicity, knowing year in and year out what the amounts will be is easy to record and easy on the auditors and accounting department. Forecasting for financial statements and budgeting are all simplified by use of SL Depreciation.
What makes a violin string higher in quality than another violin string?
It depends on the company who made the string. Different companies use different materials and methods of making strings.
How can individuals from different backgrounds may use communication methods in different ways?
Individuals from different backgrounds may use communication methods in different ways including body language and use of gestures.Individuals from different backgrounds may use communication methods in different ways such as gestures and body language.
Does consistency existence mean that a company must use the same process always?
consistency= means use the method along the useful life of the item e.g: depreciation (straight/ reducing) methods
Distinguish between depreciation policy and the concept of depreciation?
Depreciation policy is management thing that what depreciation method to use and how much depreciation to charge to each asset. Depreciation concepts are concepts which govern the depreciation process which management cannot change they are universal rules to follow depreciation that how straight line depreciation work etc.
Different methods use in studying sociology?
check
