Depreciation
Depreciation
Depreciation is necessary for companies that have planes in assets. It is a method to account for assets whose value decreases over time because of factors such as age, wear, or market conditions. In practice, depreciation serves as an income tax deduction that allows a taxpayer to recover the cost of assets placed in service. The tricky issues in recording depreciation are estimating the asset’s useful life and choosing an appropriate rate of depreciation. Estimating an asset’s useful life is very important. Management must select a realistic assessment of an asset’s useful life from this range. Because there is wide variation in the physical and economic characteristics of assets, GAAP sanctions several depreciation methods.
