Depreciation

Depreciation is the systematic reduction in the recorded cost of fixed assets, such as a building, furniture, office equipment, over their useful life. Under useful life, we mean the period of time over which the asset will be productive. When it is no longer cost-effective to operate an asset, the company will dispose of it. Depreciation can be calculated in two ways, either using an accelerated depreciation method or a straight-line method. When companies use accelerated depreciation, they write off their assets faster in earlier year in order to defer some income tax expense recognition into a later period. When a straight-line method is used, the asset is depreciated evenly over its useful life.

If you are an accountant or bookkeeper working in Croatia and are required to manage and track depreciation, you might find the words in italics in the first paragraph useful. Furthermore, it is worth remembering that the Croatian term amortizacija can be translated in English as both amortization and depreciation. In some English-speaking countries, for example Canada, the two terms are interchangeable, while in others the term amortization is used for charging off the cost of an intangible asset, and depreciation spreads the cost of a tangible asset over the useful life.

Below are some other examples of the most frequent collocations of the term depreciation.

The only asset was a laptop and they use a fixed depreciation of 25% in order to write off the asset over its estimated useful life.
We work out depreciation evenly over the useful life of assets.
There are specific software packages to calculate your depreciation.
The accounts show depreciation of the item.
The best way to avoid depreciation is to simply buy a used car.
Can you accelerate depreciation in order to boost near-term cash flows?
This means that for each year they are used, a depreciation charge of ₤6,000 is deducted in the profit and loss account.
At the end of every month, the accountant should prepare a depreciation schedule for each of the items using depreciation rates described in sub-section.
This means the loss is £30,000 at a depreciation rate of £10,000 a year.
It is normally assumed that at the end of the depreciation period the asset has little or no value.
A company may have different depreciation policies for different assets under different circumstances.
The most common depreciation method used in the UK is straight-line depreciation, as this is the simplest to implement.
Depreciation in the value of a car is inevitable.
Depreciation on buildings has reduced to 0% where buildings have an estimated useful life of 50 years or more.
Depreciation after 2 years is 50%.
The company will have an accounting policy for the depreciation of its different classes of assets.
What are the different ways to calculate depreciation for tangible assets?

Autorica: Jasminka Šturlić, prof. engleskog i talijanskog.

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