Question

In: Accounting

Would it be correct to state that depreciation is a concept of asset valuation?

Would it be correct to state that depreciation is a concept of asset valuation?

Solutions

Expert Solution

1. In accounting depreciation is not about valuation of asset, but it is a method of cost allocation.

2. Through depreciation we distribute the cost of tangible asset to expense over the estimated useful life of the asset in a systematic and logical manner. So assets are not depreciated on the basis of decline in their fair market value, but they are depreciated in a systematic manner based on cost of the tangible asset. This clearly shows that depreciation is cost allocation approach.

3. The main point of depreciation accounting is to compute the expense which should be matched with revenues generated during that particular period.

4. Moreover depreciation accounting is not about measuring the value the asset , but it is a measure to value the benefit the asset has provided during a given accounting period.

Hence it is not correct to state that depreciation is a concept of asset valuation.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Explain the concept of financial risk and its role in asset valuation and financial decision making
Explain the concept of financial risk and its role in asset valuation and financial decision making
State of Economy Probability of State Return on Asset A in State Return on Asset B...
State of Economy Probability of State Return on Asset A in State Return on Asset B in State Return on Asset C in State Boom 0.35 0.04 0.21 0.3 Normal 0.5 0.04 0.08 0.2 Recession 0.15 0.04 -0.01 -0.26 a.  What is the expected return of each​ asset? b.  What is the variance of each​ asset? c.  What is the standard deviation of each​ asset?
Bond valuation The process of bond valuation is based on the fundamental concept that the current...
Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular...
Bond valuation The process of bond valuation is based on the fundamental concept that the current...
Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular...
3. Bond valuation The process of bond valuation is based on the fundamental concept that the...
3. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to...
 State of   Economy Probability of State Return on Asset J in State Return on Asset K...
 State of   Economy Probability of State Return on Asset J in State Return on Asset K in State Return on Asset L in State   Boom 0.26 0.050 0.230 0.290   Growth 0.37 0.050 0.150 0.210   Stagnant 0.22 0.050 0.020 0.050   Recession 0.15 0.050 −0.150 -0.180 a. What is the expected return of each​ asset? b.  What is the variance and the standard deviation of each​ asset? c.  What is the expected return of a portfolio with 12​% in asset​ J, 48​%...
What are the primary differences among the CF valuation model, asset-based valuation model, and multiples valuation...
What are the primary differences among the CF valuation model, asset-based valuation model, and multiples valuation model?
What are the primary differences among the CF valuation model, asset-based valuation model, and multiples valuation...
What are the primary differences among the CF valuation model, asset-based valuation model, and multiples valuation model?
Suppose that under straight-line depreciation, a corporation would be allowed to depreciate a $10,000 asset over...
Suppose that under straight-line depreciation, a corporation would be allowed to depreciate a $10,000 asset over 4 years. Under accelerated depreciation, the corporation would be allowed to depreciate 75% of the asset's value immediately in the first year and the remaining 25% in the second year. Assume that the discount rate is 10%. (a) Suppose that the corporation normally makes $56,000 of annual profit on which it pays a 35% tax every year. What is the present discounted value of...
Suppose that under straight-line depreciation, a corporation would be allowed to depreciate a $10,000 asset over...
Suppose that under straight-line depreciation, a corporation would be allowed to depreciate a $10,000 asset over 4 years. Under accelerated depreciation, the corporation would be allowed to depreciate 75% of the asset's value immediately in the first year and the remaining 25% in the second year. Assume that the discount rate is 10%. (a) Suppose that the corporation normally makes $56,000 of annual profit on which it pays a 35% tax every year. What is the present discounted value of...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT