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Recognizing Differences

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Recognizing Differences
Katie Charger
AACC/291
May 21, 2014
Nathan LePage

Recognizing Differences
Write a 350- to 500-word paper in which you differentiate between valuation, depreciation, amortization, and depletion. Is it appropriate to calculate depreciation using two different methods? Why?

Valuation is the determining the value of an asset. This is like estimating the value of something or giving value to an item that didn’t already have a set value. This value can change from year to year. Amortization is the act of spreading the cost of something over a specific period of time or a specific amount of payments. An example of this would be when a company buys a new machine for their business. They would make a down payment and then have a payment schedule to finish paying off the machine. Depreciation allows a company to cover the decrease in the value of an asset because of normal wear and tear. This is something that happens to a company’s assets over a period of time. An example of this would be when a shipping company buys a truck. As soon as the truck is driven off the lot, the value decreases. The more the truck is driven, the more wear and tear on the parts, which in turn makes the truck depreciate in value even more. There are two different ways to depreciate an asset. There is the straight line method and the accelerated method. According to Accountingcoach.com, it is acceptable for a company to calculate depreciation using both methods. They could use the straight line method on their financial statements while using the accelerated method on their taxes. Also, according to mcgraw-hill.com, this is appropriate because using the straight-line method assumes that the depreciation value is the same each year. By using the accelerated method for taxes this shows that the depreciation value changes from year to year.

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