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What is depreciation?πŸ”₯

What is depreciation?πŸ”₯

Depreciation is the way we value the future value of long term tangible assets.🚚🚝

Depreciation essentially allows businesses to divide the cost of an asset over its lifetime.

The valueπŸ“ˆ lost each year is charged against the companies profits and loss accounts until the asset is worthless.

The cons of depreciationβœ”

The rate of depreciation is decided by the directors. This means they can agree on a rate that benefits them in regards to tax charges on net profit or by making their profits look much bigger than they are by underestimating the rate of depreciation.🎒

There is no real way of truly determining how long the asset will last and what its true value would be at the end of its life term.πŸ‘Ÿ

Because the methods used to ascertain depreciation is based on guesstimates by directors, a better way to determine the true performance of a company is to look at its cash flow statement or EBIDTA.🎩

Depreciation vs AmortizationπŸ’Ž

Amortization is used to describe the long term value of assets that aren't tangible.

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What is depreciation?πŸ”₯
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