Depreciation

Question 1

appreciation

Answer 1

Some fixed assets like property or land increase their value over time

Question 2

depreciation

Answer 2

decrease of the value a fixed asset over time. It is a non-cash expense that is recorded in the profit and loss account in order to determine the net profit before interest and tax.

Question 3

There are 2 reasons what assets depreciate:

Answer 3

a) wear and tear and b) obsolescence

Question 4

wear and tear

Answer 4

when fixed assets are repeatedly used its value reduces as more money is needed to maintain them (i.e. computers, cars, machinery)

Question 5

obsolesce

Answer 5

when new and improved fixed assets are introduced in the market, the current fixed assets lose their value and become obsolete; they are eventually removed (i.e. software, computers, new version of cars)

Question 6

two methods to calculate depreciation

Answer 6

straight-line method and the units of production method.

Question 7

straight line method

Answer 7

original cost - residual value // expected useful life of asset

Question 8

units of production method