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similar to Double Declining Balance. Reports high depreciation expense (lower net income) in earlier
years, which is an incentive for companies to buy productive assets (and continually update their
equipment). MACRS is NOT a depreciation method that can be used under GAAP, for financial
Note: Depreciation Expense has NO EFFECT on cash! It is an adjusting entry recorded to show the
"using up" of an asset over time. The cash was spent when the asset was acquired. The recording of
depreciation expense has no cash impact (no cash is paid for depreciation)!
Asset Impairment: Impairment occurs if estimated benefit of an asset falls below its book value. Then,
due to conservatism, the asset is considered impaired and must be written down to its fair market value.
Do not book in depreciation account (or accumulated depreciation). Book in a loss account and write
down the actual asset.
Loss Due to Impairment of Assets
55 Asset (Building, Equipment, etc)
Disposal of Property, Plant, and Equipment: If a company decides to dispose of an asset before it is
fully depreciated, (whether di...
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