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 company’s 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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6 Responses to “How much do you depreciate an asset and when?”
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What is the proper procedure for converting euro transactions to usd?
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
Investment accounting is accouting for the invested mony in securities or investment funds or simillar investment coorporations.
what kind of investment are you asking for
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.
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