Question
What basic questions must be answered before the amount of the depreciation charge can be computed
Answers
GPT-4o mini
Before calculating the depreciation charge, several fundamental questions must be addressed:
1. **What is the cost of the asset?**
- This includes the purchase price and any additional costs necessary to prepare the asset for use (e.g., shipping, installation, taxes).
2. **What is the useful life of the asset?**
- This refers to the estimated period over which the asset is expected to be used by the business.
3. **What is the residual (salvage) value of the asset?**
- This is the estimated value of the asset at the end of its useful life, after accounting for depreciation.
4. **What depreciation method will be used?**
- Common methods include straight-line, declining balance, units of production, and others. The choice of method affects how depreciation expense is calculated over time.
5. **Will the asset be impaired or subject to changes in value?**
- It’s important to consider whether the asset will experience impairment or changes in its value that could affect depreciation calculations.
6. **What is the applicable accounting policy?**
- Depending on the accounting framework (GAAP, IFRS, etc.), there may be specific rules regarding depreciation accounting that need to be followed.
By answering these questions, a clear basis for calculating the depreciation charge can be established.
1. **What is the cost of the asset?**
- This includes the purchase price and any additional costs necessary to prepare the asset for use (e.g., shipping, installation, taxes).
2. **What is the useful life of the asset?**
- This refers to the estimated period over which the asset is expected to be used by the business.
3. **What is the residual (salvage) value of the asset?**
- This is the estimated value of the asset at the end of its useful life, after accounting for depreciation.
4. **What depreciation method will be used?**
- Common methods include straight-line, declining balance, units of production, and others. The choice of method affects how depreciation expense is calculated over time.
5. **Will the asset be impaired or subject to changes in value?**
- It’s important to consider whether the asset will experience impairment or changes in its value that could affect depreciation calculations.
6. **What is the applicable accounting policy?**
- Depending on the accounting framework (GAAP, IFRS, etc.), there may be specific rules regarding depreciation accounting that need to be followed.
By answering these questions, a clear basis for calculating the depreciation charge can be established.