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Recognizing Differences

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Recognizing Differences
Tonya Johnson
XACC/291
April 23, 2015
Melody Lott
2
Recognizing Differences Valuation is the process of determining the value or worth of an asset, intangible or tangible, and whether it will need to be amortized, depreciated, or depleted. Each is used for different types of assets and relates directly to the allocating of costs rationally and systematically for any business. “Depreciation is the process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner” (Weygandt, Kimmel, & Kieso, 2010, p.402). Depreciation refers more to a tangible asset that over time loses some of its value due to normal wear and tear such as buildings or equipment. Some people tend to confuse this cost with the actual book cost of an asset. For instance, a truck that has been completely depreciated, may still sale for $20,000. A business's intangible expenses are amortized. This allows a company to allocate an expense over the assets useful life rather than recording the entire entry in one accounting period. Examples of intangible assets include patents, copyrights, trademarks and trade names, franchises and licenses, and goodwill. Goodwill is considered to have an indefinite life and is acutally not amortized. “The allocation of the cost of natural resources to expense in a rational and systematic manner over the resource's useful life is called depletion” (Weygandt, Kimmel, & Kieso, 2010. p. 413). Depletion refers to natural resources directly and companies generally use the units-of-activity method to identify the depletion. Depletion would be necessary to use when an actual physical inventory count is not plausible, for instance with a coal or iron ore mine. Depreciation is calculated by using the straight-line method, the units-of-activity method,
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