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Acc/291 Recognizing Differences Checkpoint

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Recognizing differences Checkpoint

Despite its differences, depreciation, depletion and amortization are used as a basis to allocate the historical cost of an asset over its useful life in order to conform with the idea that the earnings of the company is matched accordingly with relative expenses including the wear and tear of the assets used in production, construction, and other purposes. When is it appropriate for businesses to calculate depreciation using two different methods and why?? Valuation is the process of estimating the market value of a financial asset or liability. Valuation refers to the asset being recorded and disclosed at the current market value regardless of whether the price is above or below cost. Depreciation is the calculation of the cost of an asset over what the business determines its useful life in a rational and systematic manner. Straight line method, unites of activity method, and the declining methods are the three different methods to calculating depreciation for tangible assets. Amortization is the systematic write-off of an intangible asset that has a useful life and it is classified as an operating expense in the income statement. It will reflect on the financial statement over time. Amortization of intangible assets is similar to depreciation of plant assets and the depletion of natural resources in that is a process of cost allocation. Depletion is the process of allocating the cost of a natural resource to the period when it is consumed. Natural resources are reported on the balance sheet at cost less accumulation depletion. The depletion expense per period is based on units extracted from cutting, mining, and pumping. There are multiple ways to calculate the depreciation expense of an asset, but it is up to the company owners and management to decide which one will work best for the company. According to our text book…...

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