Question

Depreciation, Accrual, & Deferral Report

consider first how depreciation affects a company’s finances.

Post an answer to the following, providing specific points to support your answers.

As a business grows over time, what impact would you expect depreciation to have on the assets' values?

Post a second response explaining the difference between an accrual and a deferral and give an example of each type of transaction.

Answer 1

Depreciation is an estimated loss of the value of a fixed asset. It is a charge against profit. So it effects the profit earned and in turn effects the stockholders'' equity. this effects the financial position of the business.

A highly depreciable assets requires finance within a short or medium term to replace the asset.

As a business grows over time, the value of an assets keeps on diminishing due to depreciation charged on it. For example, The cost of the assets is $5,000,000 and its useful life is 10 years. Then this value of the assets is allocated over 10 years. Depreciation under straight line method is 5,000,000/10 = $500,000. Now every year $500,000 will be deducted from the asset value.

Deferral is concerned with the amortisation of intangible assets e.g., write of premium on bonds.

Accrual is concerned with the recognition of expenses and revenue e.g., salaries earned by the employees but not paid to them.