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Does the straight line depreciation method and the double declining balance depreciation method produce the same book value each year?
No. The choice of depreciation method has an impact on net asset value and taxation. A simplistic example follows for a generic corporation:
* The company has a fixed asset that cost $1,000, has a useful life of 5 years and no salvage value
* Corporate earnings before interest, taxes, depreciation and amortization (EBITDA) is $500 which is represented in a cash asset
* The company does not have any debt, interest expense or interest income
* The company does not generate/lose cash flow from financing or investing
For the first year, the following key metrics are noted for the company
Item Using Straight-Line Using Double-Declining
EBITDA $500 $500
Depreciation ($200) ($400)
EBT/PBT $300 $100
Taxes at 40% ($120) ($40)
PROFIT $180 $60
EBIT $300 $100
+ Depreciation $200 $400
- Taxes ($120) ($40)
CASH FLOW FROM OPS $380 $460
Non-Cash Net Assets $800 $600
Cash $380 $460
TOTAL NET ASSETS $1,180 $1,060
So, in the first year, the book value of the business is higher by using straight line depreciation.
The following results are summarized for all five years of useful life:
Item Using Straight-Line Using Double-Declining
BOOK VALUE yr 1 $1,180 $1,060
yr2 $1,360 $1,216
yr3 $1,540 $1,430
yr4 $1,720 $1,678
yr5 $1,900 $1,900
So to summarize, the different techniques produce different book values on a year-to-year basis, however, by the end of the useful life of the asset, the book values are the same. All things being equal, if one earns interest on the cash balances, the double-declining method produces a higher book value by the end of the useful life of the asset.
What else can I help you with?
Is depreciation on equipment fixed or variable?
Depreciation is a fixed cost because variable cost is that cost which change with the change in the production units but it doesn't put any effect on depreciation as depreciation of the equipment will remain same no matter you produce maximum number of units or produce no unit in fiscal year.
Recording the cost of equipment as an expense over the time it is expected yo produce revenue is called?
depreciation
In an inflationary environment which inventory cost flow assumption would produce the lowest inventory balance?
weighted average
How do I depreciate of appliances?
I've provided a link that gives detail on the "how to" of depreciation....I'm sure your looking forward to reading that! First...consider if you can depreciate...it must be certain types of property held for productive use (basically to produce income). So a refrigerator in a rental property may be depreciated...the one in your residence can't be. But especially because of the accounting and such, if you have small amounts of property to depreciate...now under 125K or so a year...under Sect 179 you can just expense them. Generally a great benefit and something you really should look at. The linked Publication has info on this too.
Do you have to pay capital gains tax on a rental home that was sold for less than what you originally paid for it?
Presuming it was accounted for each year properly, maybe: Sure, there is no gain in the way you present it, and instead you would have the tax benefit of a loss. (So reportable as a capital transaction, but at a loss). The capital gain loss is calculated from your basis VS the sale price (minus applicable transaction costs, like broker fees). The basis is your original cost, and many other things - improvements for exmple and minus some others, particularly depreciation. So your tax gain or loss may be much different that it wuld be as you calculate. For example, if you depreciated (and actually even if you didn't by how the law reads), the property properly during ownership...and received all the years of tax benefits while doing so, every years depreciation reduces your basis. Therefore, it is possible your tax basis is now much. much less than you paid for it (even 0), and when sold, could produce a capital gain.
Do the straight-line method and the production method and the double-declining-balance method differ in their effect on the company's profitability?
Yes, the choice of depreciation method can affect a company's profitability. The straight-line method evenly distributes depreciation over the useful life of an asset, which can lead to stable financial statements. The production method ties depreciation expense to the level of production, impacting profitability based on usage. The double-declining-balance method accelerates depreciation in earlier years, potentially impacting profitability by reducing taxable income.
Is depreciation on equipment fixed or variable?
Depreciation is a fixed cost because variable cost is that cost which change with the change in the production units but it doesn't put any effect on depreciation as depreciation of the equipment will remain same no matter you produce maximum number of units or produce no unit in fiscal year.
What is the period of time when the amount produce is declining?
recession
Recording the cost of equipment as an expense over the time it is expected yo produce revenue is called?
depreciation
Do gay women produce more testorone than straight women?
No. Lesbians are just as feminine as straight women.
Why do Pennsylvania steel mills produce less steel than they did in the past?
They produce less steel because of global competition. Japan, Korea and Indonesia produce steel that is cheaper and as good. Demand for US steel has been declining over the past 30 years.
How do animals help in the balance of nature?
They produce oxygen. If it poo, we have fertilizers. :)
What are resistors that produce a straight line graph called?
Linear resistors
How much horse power does a KA24DE produce?
Stock and straight from the factory, about 155hp.
What variables help produce tone quality from the bow for violin?
Weight, balance, density.
What will produce a better balance in road speed and torque 3.70 or 4.30 ratio?
eat gum
How much oil does fracking produce?
Fracking can produce varying amounts of oil depending on factors like the geology of the site, technology used, and well conditions. On average, a fracked well can produce anywhere from hundreds to thousands of barrels of oil per day during its peak production, with overall production declining over time.
