ACC230 question 2.4 - amounts following every report, until...

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Week 2 question 2.4 for ACC230 Advantages of Depreciation Methods Depreciation is allocating the costs of assets over a period of time. Different methods are used by different companies for different reasons, and sometimes different methods by the same company. Depreciation is sometimes taken at ‘book value’, which is the difference between original cost and any accumulated depreciation to date. Depreciation is the original cost of the item, less the estimated salvage value of the item at the end of its life time use. This money value is normally taken one of two ways, whichever is more beneficial to the company. Straight line method is to take the total depreciation value and divide this sum equally over the given time frame. In essence this means taking an equal amount of money each year, quarter or time frame being used. The second method used is Accelerated; this is taking percentages of the money over the given time frame. This would involve the largest amount first, with lesser
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Unformatted text preview: amounts following every report, until the last repot which would zero out the depreciation. Both methods would involve the same amount of money, just taken in a different manner. The methods used are dependent on the reasons, material, and in many (most cases), the tax benefits involved. Most companies I have seen use the straight line method of depreciation for tax purposes, as this gives them a larger write-off in the later years. Some do use the accelerated method as the write off is greater in the beginning and they may acquire more assets to depreciate later for the same tax benefit. There are times when the asset being depreciated is the deciding factor in the method used. A taxicab for example, is often depreciated using the accelerated method as the book value of the vehicle drops every year, as does the actual value of the vehicle. In addition you also have the maintenance costs to off set the lower depreciation every year....
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