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Essay / Research Paper Abstract
This 2.5-page paper focuses on discussion of forms of business depreciation(such as accelerated and straight-line) and describes the difference between book value and savage value. Bibliography lists 5 sources.
Page Count:
2 pages (~225 words per page)
File: D0_MTdepdef.rtf
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investors with a true idea of the worth of a corporation. Depreciation is one such method used to determine the value of an asset that is no longer new.
Before going into the various types of depreciation out there, its helpful to first analyze what, exactly, depreciation is. Depreciation, in its simplest
form, is defined as the "allocation of the cost of an asset over a period of time for accounting and tax purposes" (Investorwords.com (c), 2003). Depreciation is also the reduction
of value in a piece of property or equipment because of general wear or tear from usage, or even obsolescence (Investorwords.com (c), 2003).
Beyond this definition, there are various types of depreciation a business can use and for various reasons. For example, accelerated depreciation allows faster write-offs of an asset than does
the straight-line method (which well examine next) (Investorwords.com (a), 2003). A company would use accelerated depreciation if it has a huge tax burden, as this type of depreciation offers a
large tax shield (Investorwords.com (a), 2003). Accelerated depreciation is also used for writing off equipment that might be replaced before it wears out, especially equipment that might be obsolete (such
as computers) (Investorwords.com (a), 2003). Another method of depreciation is straight-line depreciation. Straight-line depreciation calculates depreciation of an asset with the assumption
that the asset will lose an equal amount of value each year; no more and no less (Investorwords.com (e), 2003). The annual depreciation in this case is calculated by subtracting
the salvage value of an asset from its purchase price, then dividing the resulting number by the estimated useful life of the asset (Investorwords.com (e), 2003). Unlike the accelerated method,
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