Week 3 DQs - Week 3, DQ1 What is the purpose of...

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Week 3, DQ1 What is the purpose of depreciation? Does the book value of a fixed asset (cost minus accumulated depreciation) communicate to a user what the asset is worth? Explain why or why not. Should the financial statements reflect the value of fixed assets? Explain why or why not. Depreciation, in accounting terms, is a charge for the decline of an asset’s value and is spread over its useful life. Depreciation can be based on usage, age, obsolescence, newer technology, and loss of the asset’s usefulness. Depreciation can also be used when assessing property value, like machinery or buildings. Depreciation is an allocation process, not a valuation process. The book value of an asset is derived at subtracting the asset’s cost, less the asset’s accumulated depreciation. For example, a company truck that cost $50,000, the accumulated depreciation is $25,000…the difference is $25,000, indicating the book or carrying value of the truck. The book value is not the amount of what the asset is worth. In the example of the truck,
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Week 3 DQs - Week 3, DQ1 What is the purpose of...

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