Question

1-Depreciation, Amortization, and Depletion are ways to expense long term assets over time. Create a chart or table, and match each (Depreciation, Amortization, and Depletion) with its respective underlying long term asset, selecting from Intangible Assets, Natural Resources, and Fixed Assets. Why do companies write off these assets over time? How does this expensing effect the Statement of Cash Flows? Your answer should be at least 5 sentences. (This is also checking your ability to create a chart or table in Excel.)

2-Are there differing ways to account for Goodwill based on whether it is generated in house, or part of a purchase? Describe using at least 3 sentences.

3-When should a company capitalize the purchase of an asset, describe using at least 3 sentences, considering how long the asset will last..

Answer 1

Answer 1 :

Depreciation, Amortization, and Depletion are ways to expense long term assets over time. Depreciation, Amortization and Depletion are the wzys tp write off Assets and reflect true and fair value over the period of time. This can be also called systematic reduction in the value of assets during the useful life span. Depreciation - Is the method of reduction in the value of an Assets over the useful life of fixed assets (Tangible Assets). Amortizarion- It refer in case of Inatngible assets . The benefits accuring from the assets tend to reduce over the period. Depletion - This is a method of reduction used in case of Natural resources, by which there is systematic reduction in the value of assets. Type of Write off Depreciation Amortization Depletion Type of Assets Fixed Assets Intangible Assets Natural Resources Examples Furniture and Fixture Goodwill Natural Gas Plant and Machinery Patent Oil Fields Vehicle Trademark Mines    companies write off these assets over time to have more tax saving and Income. It also depicts true and fair value of assets over the period and reflect the true view of the company financial position. Since Depreciation/ Aamortization is a non cash Transactions, Doesn’t have any casd impact directly. Since it means to freduce the value of assets over time, it is treated as an expnece and needs to be deducted from the income. Thus help in lowering the taxable income and hence result in tax saving. It indirectly has cash benefit. In this way cash position will be affected. Answer2: Are there differing ways to account for Goodwill based on whether it is generated in house, or part of a purchase? - NO Self Generated goodwill is not an identifiable assets, hence cant be Quantified and Measured. Goodwill is the price paid by the Acquitring company to the acquired compant in excess of it net worth. Goodwill is calculated by 2ways 1) The difference of fair value of the identifiable tangible and intangible assets acquired, and 2) total of liabilities paid off. Thus goodwill is considered as an Intangible assets and reported in balance sheet and effect in equity needs to be reported. Answer 3:When should a company capitalize the purchase of an asset: To match the revenue and expense principle, assets which are consumed immediately are generally expensed in the period in which they are purchased. Assets which have long life span and recorded as an assets in more than one accounting year and there benefits are speard over their useful life, needs to be capitalise the cost and not expensed.