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Depreciation Problems

What is depreciation?

Depreciation refers to the method by which the cost of an asset is determined over an estimated period of time for which the asset may be useful. The concept that is used in depreciation is to match the expense with the revenue earned by the asset according to GAAP for accounting on the basis of accrual. The cost that is determined will include the cost of the asset and any other expense that may be required to make the asset useful. Some of these costs include the labor required to set up the asset and any additional parts that may be required. Given below are questions that have been answered by Experts about Depreciation.

Would depreciation be considered a part of overhead expenses?

Depreciation, in most cases, may be considered to be a part of overhead expenses.

Under what circumstances would a company want high amounts and low amounts of depreciation expenses?

A company may want high amounts of depreciation expenses under various circumstances. Some of these are as follows:
To counteract the expenses of repair when an asset gets old
To recover the cost of the asset within a short period of time

The company may want a low amount of depreciation when the use of an asset is normally the same from year to year.

How would historic cost based depreciation affect profits?

In most situations, if there has been inflation, then historic cost based depreciation may increase profits.

What is the straight line method of calculating depreciation?

The straight line method of calculating depreciation is a method in which it is assumed that the capital asset will earn revenue at a steady rate over a period of time when it is useful. This method is the most common method in calculating depreciation because it is very simple. The formula for calculating depreciation using this method is: (Purchase Price of Asset-Approximate Salvage Value)/Estimated Useful Life of Asset.

What is the declining balance method of calculating depreciation?

The declining balance method is one of the ways to calculate depreciation. In this method, the depreciation rate is applied against the non depreciated balance of the asset. The formula for this method is Annual Depreciation= (1/N)

Can accelerated depreciation for a building be used for tax purposes?

Accelerated depreciation may be used for commercial buildings for tax purposes. More information about this may be found on the following URL: http://www.bizjournals.com/columbus/stories/2005/05/09/focus3.html

Is the straight line method of calculating depreciation required to be used for office equipments?

The straight line method must be used while calculating depreciation of office equipments because these may have a shorter span of life in comparison to other assets like the building or land.

What are the different tax rules regarding depreciation of rental property?

Depreciation of the property may start as soon as a person converts the personal property for rental use. The depreciation will only be on the building and not on the land on which the property is. A person may not have to pay tax on depreciation. It is considered an expense that reduces a person’s taxable income.

Almost every kind of property may be subject to depreciation. If you own any kind of property, it is important for you to understand what depreciation is and how it works. Knowledge about this will help you determine how much you may earn if you sold or rented out your property. However, depreciation may have many aspects that may not be easy to understand. At such times, you may ask an Expert and get all your doubts clarified.
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