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Which method of depreciation is more benificiant of the company?
Wiki User
∙ 15y ago
It depends on whether the company is making money or not. If it is, then whatever type allows for the most expense to be written off. That allows it to pay less tax on its income.
Wiki User
∙ 15y ago
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Which of these is an example of depreciation?
A worker’s truck breaks down more often after 80,000 miles of driving.
Is depriciation a source of funds?
Depreciation is, strictly speaking, not a source of funds: you can not take the value of depreciation and spend it at the store. Rather, depreciation is a contra asset account, i.e., business expense, that is 'added back' in preparing a Sources and Applications of Funds, i.e., Cash Flow Statement, to arrive at a more accurate indicator of cash flowing into and out of the business.
What would the journal entry be if a company incurred an expense?
There may be more than one way to record an expense. The easiest journal to think about is when you've used cash to pay for the expense. In that case, you would debit an expense account and credit cash. But, if you've received the benefit of an expense but have not yet paid for it the debit would still be the expense account but the credit would be a liability account. Of course, there are times when cash flows but no expense is recognized such as investments in property, plant and equipment. After that expenditure is made you would recognize periodic expenses in the form of depreciation. That would be a debit to depreciation expense and a credit to accumulated depreciation.
Machinery sold what is the accumulated depreciation?
All equipment owned by a business should be listed on the corporation's income tax return each year. This page of the report is called the Depreciation Schedule. Each year the taxpayer should report any new equipment purchased and also tell his accountant which items of equipment were sold or disposed of by the owner. The corporation's accountant increases the depreciation each year to offset income and thereby reduce taxes. The depreciation amount taken each year is usually higher than the actual physical depreciation occurring due to weather and use. To determine the accumulated depreciation on a piece of equipment, look at the last tax return available to see what the number is on the Depreciation Schedule. The actual value of the equipment sold will be higher than the Purchase Price New minus the Accumulated Depreciation. A good rule of thumb would be to add back 1/2 of the accumulated depreciation to get a ball-park idea of the fair market value. Better yet - have the equipment appraised by a Certified Machinery & Equipment Appraiser (CMEA). For more information on this subject, go to www.nebbinstitute.org. An interesting and helpful article on farm equipment that discusses depreciation, recaptured depreciation and capital gains tax related to the sale of equipment can be found at www.extension.iastate.edu/Publications/PM1450.pdf. Paul Klinge, CBI, CBC, CSBA The Lincoln Group, Inc. Waverly, Iowa 319-352-0132 Business Transfer Specialists Mergers & Acquisitions Business Valuations Machinery & Equipment Appraisals
Why depreciation is not shown in balance sheet?
depreciation is an estimation and every company estimate there own method's of depreciation which gives more option for fraud . because depreciation is a non cash expense. which can lead to big fraud.
Can a company change the method of providing depreciation?
A company can change its method of providing Depreciation, (a) If it is necessitated by Statue or standard, or (b) If it would result in more Appropriate preparation or presentation of Financial Statement...
Sinking fund method for depreciation?
Sinking fund method for depreciation The straight line method has equal annual depreciation for every year. There are other methods which has more depreciation allocated to the earlier years like Written-Down Value (WDV) method in which depreciation is charged at fixed rate (%) on the reducing balance (i.e. cost less depreciation) every year. The sinking fund method allocates more depreciation to the later years. The depreciation for the first year equals the annual deposit needed for a sinking fund to accumulate at the given rate to an amount that equals the depreciation base. For each consecutive year, the annual depreciation equals the annual sinking fund deposit plus the interest earned on the fund up to that year.
Why is it important for a hospital to pay attention to depreciation more than a computer software company?
It is more important for a hospital to pay attention to depreciation than a computer software company for a couple of reasons. The first reason is patient care. The second reason a hospital needs to pay attention to depreciation is the insurance company payment to the hospital is oftentimes much less than a private pay.
What is Reducing balance method of depreciation?
This is an accelerated method of depreciation in which the depreciation is computed by applying a fixed rate to the book value of the fixed asset. This method results in a higher depreciation charge in the early life of the asset compared to later years. The rationale for using this method is that many kinds of plant assets are most efficient when new, so they provide better service in the early years of its useful life. It is therefore consistent with the matching rule to allocate more depreciation to the early years compared to later years if the benefits to be received in the early years are higher. E.g. Computers are more useful in the early years compared to later years, since they are easily obsolete by technological advances. Hence, it has diminishing value as the years goes by.
What is depreciation in terms of accounts?
Depreciation is an expense which is charged on fixed assets of a company. Over time, fixed assets of a company lose their value due to use, wear and tear, and natural causes. Since the exact value of fixed assets cannot be determined, depreciation is charged on them to get their estimated value. Depreciation is listed in the income statement of a company under the head "Expenses". It is also listed in the balance sheet as accumulated depreciation.
What is MODIFIED straight line method for calculating depreciation?
The modified straight-line method for calculating depreciation is a variation of the straight-line method where the depreciation expense is accelerated in the early years and then slows down in the later years. This method takes into account the salvage value of the asset and spreads the depreciation expense more evenly over the useful life of the asset. It is often used when the asset's cost declines more rapidly in the early years of its useful life.
What is meant by a EBITDA margin?
A EBITDA margin is a way for companies to measure their profitability. This margin is equal to their earnings before interest, depreciation, tax, and amortization divided by the total revenue of the company. It is important to note that an EBITDA margin doesn't take into amortization and depreciation and therefore an investor who is interested in the company is able have a cleaner view of the main profits of the company (profits that are not influenced by depreciation and amortization). Essentially, the higher a EBITDA margin is, the less operating costs the company must pay, and therefore more overall profitability in its operation.
What are differences between Straight - Line and Diminishing Balance Methods of charging depreciation?
The straight line method assumes that the useful life of an asset is evenly distributed to its life, so results in a constant depreciation charge per year provided the estimated residual value remains constant over the life of the asset. for example, Asset's value = $100,000 useful life = 10 years residual value = $20,000 depreciation per year = (100,000 - 20,000)/10 = $8000 per year The diminishing balance method assumes that the asset is more useful on the early days and less useful in the later days, so it results in more depreciation charge in the early years and the charge decreases as the asset becomes old. for example, Asset's value = $100,000 residual value = $20,500 depreciation rate = 10% useful life = 15 years depreciation year 1. (100,000 * 10%) = 10,000 depreciation year 2. (100,000 - 10,000 W1) * 10% = 9000 depreciation year 3. (100,000 - 19,000 W2)* 10% = 8100 depreciation year 4. (100,000 - 27,100 W3)* 10% = 7290 W1 = depreciation of year 1 W2 = depreciation of year 1 and year 2 combined W3 = depreciation of year 1, year 2 and year 3 combined
How do you increase accumulated depreciation?
In order to increase accumulated depreciation, you allow time to pass. It will depreciate more over time.
What is the depreciation on a used Mitsubishi car?
The depreciation on a used Mitsubishi car is different for every car. There is no given set limit on depreciation for a used Mitsubishi car. Dealers would know more.
Why you use accumulated depreciation and not reduce depreciation from asset directly?
Basically the concept is to provide more detailed information and a method of checks and balances against the depreciation. The original acquisition cost of the asset is preserved this way and always appears until the asset is disposed. If you simply reduced the asset every year by the depreciation amount there would be less information for outsiders to understand why the asset keeps decreasing, or have the ability to distinguish whether you have new, low cost assets or a bunch of ancient assets which are almost completely depreciated.
