August 22nd, 2014
What are the differences between valuation, depreciation, amortization, and depletion?
Valuation, depreciation, amortization and depletion all have differences among them. Depreciation is the process of allocation to expense the cost of plant assets over the span of life when it is useful in a rational and systematic way. It is used on tangible assets such as equipment, land and property. Valuation is the process of valuing a company's assets for financial reporting. Amortization is another process of allocation cost of a company's assets over its life span, the differences are the amortization is used for intangible assets. (Patents, grants and copyrights, leases and franchise. Last but no least depletion is another process similar to depreciation where process allocates cost of a company's assets. (Natural resources; oil, coal, timber and natural gas.
Is it appropriate to calculate depreciation using two different methods? Why?
Many companies use two or more methods of depreciation, so yes two different methods can be used.
According to Accounting Coach, "It is acceptable and common for companies to depreciate its plant assets by using the straight line method on its financial statements, while using an accelerated method on its income tax return". Companies could also be depreciation there equipment over a decade for its financial statement, while also using seven years for their income tax. The depreciation for financial statements could consist of some assets becoming depreciated using the units of production or the units of activity method. While other assets are depreciated using the straight line method. Using the two is not against the rules, it is however recommended that one method be used throughout its "shelf life".