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April 25, 2008

How much do you depreciate an asset and when?

Depreciation begins when you place an asset in service and it ends when you take an asset out of service or when you have expensed its cost, whichever comes first.

For financial statements, you are guided by the matching principle. The objective is to match the cost of the asset to the accounting periods in which revenues were earned by using the asset. There are two estimates needed: 1) the number of years that the asset will be used, and 2) the salvage value at the end of the asset’s use. If an asset has a cost of $100,000 and is expected to be used for 10 years and then have no salvage value, most companies will depreciate the asset at the rate of $10,000 per year. This is known as the straight line method of depreciation.

For income tax purposes in the U.S., the Internal Revenue Service has determined the number of years that various assets will be useful and it assumes there will be no salvage value. The IRS also allows companies to take larger depreciation deductions in the earlier years and smaller deductions in the later years of the assets’ lives. This is known as accelerated depreciation.

As you probably noted from the above information, in any one year the depreciation expense on the financial statements will be different from the depreciation expense on the income tax return. However, over the life of an asset, the total depreciation expense will be the same. Accountants refer to this as a timing difference.

Learn more about Depreciation Expense. You will also find Crossword Puzzles and Word Scramble Puzzles for depreciation on AccountingCoach.com.

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Comments

15 Responses to “How much do you depreciate an asset and when?”

  1. David on May 2nd, 2008 8:47 am

    What is the proper procedure for converting euro transactions to usd?

  2. ibrahim elsayed on May 2nd, 2008 4:05 pm

    what is an accounting of investment?
    what does it means?
    i will got a new job in acorprate company as a chief accoountant please try to help me

  3. Ashraf on May 4th, 2008 8:48 am

    Investment accounting is accouting for the invested mony in securities or investment funds or simillar investment coorporations.

  4. waleed gheat on May 5th, 2008 6:55 am

    what kind of investment are you asking for

  5. mani on May 10th, 2008 1:39 pm

    we consider depreciation immedietly when the assets is put in to use an, the are different method that a company can use, it ca be straight line, diminished balance method or cost price method. depreciation will stop when the iterm is damaged can can no longer be used or when it has depretioted its value.

  6. Patricia Dobrosi Pearson on May 11th, 2008 8:36 pm

    Well, I just failed my first accounting course through the community college. The instructor is a CPA. Putting the cart before the horse was my down fall. They wanted us to know Chapter 15 when we only read through chapter 12. The Final covered Inventory estimation. Unfortunately, I am not able to pull knowledge out of thin air. I wish I had know about your free website before paying so much money for this class.
    Your simple explanation of how to get retail percetages from sales would have helped me pass. This is an area not covered before Chapter 15. I will be sure to recommend your free website to all students before they attempt to take a college course that costs so much money.

  7. Sidz on May 29th, 2008 10:32 am

    Thanks for the note it helped in my project

  8. AneesAhmed on June 1st, 2008 1:17 am

    This is my question that what is diffeence between management accountant and corporate accountant and what is the actual job of accountant in this field

  9. Wasif on September 3rd, 2008 12:18 am

    tell me the difference between capitilisim and socilism in accounting point of view?

  10. RAFZA on November 5th, 2008 10:08 am

    GIVE ME AN EXAMPLE FOR NET BOOK VALUE? WITH AN SUM

  11. Naeem on February 19th, 2009 6:55 am

    the website ius superp in its contents . really i enjoy its reading ,and a lot of hard work has done, enrich it with more graphs charts and visual display

    Regards,
    Naeem bangash
    Accountant,UAE,

  12. nada on March 1st, 2009 2:19 am

    Do we depreciate the office desk, chair etc…?

  13. TJ on March 7th, 2009 2:32 pm

    Can an asset (a car) be depreciated by a company whether it is leased or owned? Is one preferable over the other?

  14. JC on August 6th, 2009 9:54 am

    We got the equipment however it is not paid can we still depreciate the equipment?

  15. Sizwan on November 2nd, 2009 10:54 pm

    what is standard depreciation period for computers and peripherals?

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