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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 else can I help you with?
Is depreciation included as a cash flow in capital budgeting?
No depreciation is not included as depreciation is allocation of part of assets cost to income statement while in capital budgeting, full cost of asset is already included so if depreciation will also be included then there would be double counting of same asset.
When determining the value of a fixed Asset and a rebate was given do you reduce the value of the the fixed asset or book at a true cost?
If the company are using cost basis to value their assets then the rebate will reduce the cost.
What is cost basis of stock?
The cost basis is the original value of an asset adjusted for stock splits, dividends or capital distributions. It is used to figure capital gain or loss for tax purposes
The difference between the cost of an asset and the accumulated depreciation for that asset is called?
Book Value is the difference between the cost of an asset and the accumulated depreciation of that asset.
Fully depreciated asset?
Is an asset that has equalled its original cost
How do you capitalize auto taxes paid?
The amount of auto taxes would be included in the cost of the auto as a part of the cost basis of the capital asset.
Interest may be included in the acquisition cost of a plant asset?
yes
Is depreciation included as a cash flow in capital budgeting?
No depreciation is not included as depreciation is allocation of part of assets cost to income statement while in capital budgeting, full cost of asset is already included so if depreciation will also be included then there would be double counting of same asset.
When determining the value of a fixed Asset and a rebate was given do you reduce the value of the the fixed asset or book at a true cost?
If the company are using cost basis to value their assets then the rebate will reduce the cost.
Can you explain what the adjusted cost basis is and how it is calculated?
The adjusted cost basis is the original cost of an asset adjusted for certain factors like depreciation or improvements. It is calculated by taking the original purchase price and adding or subtracting any adjustments made to the asset's value over time.
What is the cost basis for Johnson Controls?
The cost basis for Johnson Controls is the original purchase price of an investment or asset, which is used to calculate capital gains or losses when the investment is sold.
What is the cost basis for a covered call strategy?
The cost basis for a covered call strategy is the price at which the underlying asset was purchased, plus any additional costs such as commissions or fees.
What is depreciation and why is it included in the balance sheet?
Depreciation is allocation of fixed asset cost to income statement of useful life of asset that's why shown as reduction in fixed asset value.
What is cost basis of stock?
The cost basis is the original value of an asset adjusted for stock splits, dividends or capital distributions. It is used to figure capital gain or loss for tax purposes
What can be included in the cost basis of a home?
The cost basis of a home can include the purchase price, closing costs, and certain improvements or renovations that increase the value of the property.
If equipment priced at 130000 is acquired by trading in a similar asset at 8000 What is the cost basis of the new asset?
As trade-in value of old asset is 8000 which is deducted from price of new asset and actual cash paid to acquire new asset is 122000 so the base value for new asset will be 122000.
What does replacement cost theory means?
Replacement cost theory means the amount it would cost to replace an asset at current prices. If the cost of replacing an asset in its current physical condition is lower than the cost of replacing the asset so as to obtain the level of services enjoyed when the asset was bought, then the asset is in poor condition and the firm would probably not want to replace it...In short the theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company...
