Diminishing or Reducing or Written down Method Homework Answers
For understandingÂ diminishing or reducing or written down method homework answers, one needs to understand
- What is an asset?
- It’s importance in the company
- What is depreciation?
- How depreciation affect the balance sheet of a company?
What is an asset?
Asset of a business can be categorized into two terms
- Tangible asset â€“
These are pieces of equipment or equipment purchased by the company, plot purchased by the company, building purchased by the company, furniture purchased by the company, etc
- Non-tangible asset â€“
The brand name, goodwill of the customer, services offered by the company, etc.
Assets are listed on companyâ€™s balance sheet. Both tangible and non-tangible asset is evaluated and noted on the balance sheet of a company. There is just one problem in listing the asset value on the balance sheet. They are written in the purchase value rather than the market value of the asset for that financial year. Variation between purchased value and market value is depreciation of the asset.
Depreciation calculation is a hectic job. TheÂ diminishing or reducing or written down method homework answersÂ helps an individual in gathering good knowledge about the asset, depreciation and how depreciation is calculated.
WhyÂ areÂ theÂ non- tangible assets important for a company?
The non-tangible asset is patent, trademark, brand, customer list, licensing agreement, etc. Yes, the non-tangible asset is important for the company. It can also be noted down on balance sheet if their lifeline can be calculated. Now the question arises how to calculate the lifeline of the non-tangible asset? It is difficult but not impossible.
Internal brand recognition is not listed in balance sheet like the company like Pepsiâ€™s logo has a huge brand value, but it will not be listed on the balance sheet. So now the question arises which non-tangible asset to be included in the balance sheet and which should be not?
According to the GAAP (generally accepted accounting principles), only those intangible asset should be included in the balance sheet whose value can be related to a tangible asset and they have a useful lifeline. The non-tangible asset also appears in terms of their amortization value as a long-term asset.
The diminishing or reducing or written down method homework answersÂ help you in the calculation of the amortization value of the non-tangible asset. It is an easy method for calculating the depreciation value of an asset. Accountants mostly used this method to calculate depreciation.
What are depreciation and amortization?
A depreciation term is used for tangible asset and amortization is used for the non-tangible asset. Depreciation is the loss of the value of an asset because of its wear and tear and regular usage. Depreciation is the gap between the real value of the asset and the present market value of the asset.
Amortization is the loss of value of the non-tangible asset because the life line of the non-tangible asset ends or it is no more use for the company.
How depreciation affect the balance sheet and profit of the company?
In the balance sheet, the real purchased value is mentioned in the profit side of the company or in the asset column of the balance sheet, whereas depreciated value is written on the liability side of the balance sheet. Â Depreciation is treated as an expense. If the value of depreciation is increasing rapidly, so the expense of the company is also increasing.
The diminishing or reducing or written down method homework answersÂ help in depreciation calculation of any tangible or non-tangible asset. Depreciation affects a lot in the profit of the company. It also affects the cash flow of the company. As the profit is decreasing because of depreciation and amortization, cash flow in other important things will decrease. Thus it affects the companyâ€™s balance sheet and profit very poorly. It should be decided when to replace the asset before getting more financial losses.
For financial accounting straight method of depreciation, the calculation is good. But with respect to tax accounting, it is good to opt for other depreciation calculation method like written down or reducing or diminishing method of depreciation calculation.
What is diminishing or reducing or written down method of depreciation?
In this method, depreciation is calculated as fixed percentage of the real value of the asset. For example, if the value of the asset is INR 100 and company has decided to deduct 10 % as depreciation per year, so depreciation will be INR 10 and value of the asset will be 90, next year again depreciation will be 10 % of 90 that it INR 9.
The diminishing or reducing or written down method homework answersÂ will help an individual in the calculation of depreciation and how to fill depreciation in the balance sheet. They will train the individual for accounting terms and calculations.
The diminishing or reducing or written down method homework answersÂ is a good initiative which company can hire to train their employees. It will give a win-win situation to both employee and employer as an employee will gain the knowledge without any need to travel or spending extra money and employer as they will gain the goodwill of the employee and also the employee’s efficiency in accounting will increase manifold. This results in less number of errors when the individual is performing the calculation of the balance sheet.
Most of the students have a huge issue in regards to this subject, and for them, it is best that such manuals are available so that they have no issues understanding basic concepts of this subject.