SOLUTION Second Group In-class Exercise a) Depreciation is a method of cost allocation, rather than asset valuation. The definition of depreciation is the process of allocating costs of tangible assets to an expense in those periods expected to benefit from the use of the asset. Depreciation expense attempts to match costs to the revenues the asset produces. Not recording depreciation expense will overstate income on the Income Statement. By not recognizing depreciation expense, income from continuing operations will be inflated, and will not correctly match the costs associated with the revenue generated in the period. Also, not depreciating operational assets will cause their value to be overstated on the Balance Sheet. These assets should reflect amounts that are their remaining productive capacities. b) Accelerated methods of depreciation recognize a greater expense in the first years, and gradually lesser amounts near the end of the asset’s useful life. One argument for this method is that an asset
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This note was uploaded on 11/30/2010 for the course BUSINESS 4230 taught by Professor Dee during the Spring '10 term at Community College of Denver.