Chapter#4B: Depreciation and Amortization Flashcards
What is Depreciation?
to record the systematic write-off of the cost of a tangible capital asset
What is Amortization?
it’s used to write-off the cost of a intangible capital asset
Whats the Purpose of Depreciation and Amortization?
it’s to charge a portion of the cost of the capital asset against the revenue
True or False; Depreciation and Amortization are not calculated the same way?
False, they are.
What are the 2 ways of calculating depreciation?
Straight line and Declining balance
What is Straight-Line Depreciation?
it’s a method of writing off the cost of capital assets
What is Residual Value?
it represents the expected value of the asset at the end of it’s useful life to the business
What is the Declining Balance method?
it’s an accelerated depreciation method
What is an accelerated depreciation method?
it calculates more depreciation in the early years and less in the later years.
how is Depreciation calculated
it’s calculated on the remaining underappreciated cost of the asset each year
How is the Net Book Value calculated?
By subtracting the accumulated depreciation recorded on the asset from the original cost of the asset
