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In: Other Topics

Submitted By tgilbert2183
Words 365
Pages 2
Tasha Gilbert
Melody Lott
March 7, 2014

First to differentiate between and understand valuation, depreciation, amortization and depletion have to define each term. Valuation refers to the value of something; in accounting valuation is the fair market value and net depreciation. Items that are valued in accounting are usually a financial asset or a liability. An objective technique of calculating the value of company is to calculate its value based on future earnings. A subjective technique of valuation would be to judge the contributions of a company’s management. Depreciation is the adjustment to the net income of an item to the diminished value of fixed assets. Amortization is an adjustment to the net income of an aging entity to figure how to estimate the intangible assets cost over the estimated useful life of the asset. Depletion is a concept that is used more often than not in mining, timber, or petroleum. Depletion describes a company’s physical depletion of natural resources. Amortization and depreciation deal with the aging of assets where depletion deals with the actual depleting of resources. Valuation to some up is putting a value on assets whether aged or new. It Is acceptable for companies to use two methods of depreciation. Often times a company will use the straight line depreciation method as well as accelerated method on other items. A company can will use straight line method for a number of years while recording financial statements and then use accelerated method for a different amount of years and calculate items like income taxes. It is not only common for a company to use two methods of depreciation but beneficial. If a company needed to reduce their tax payments they would not want to use the straight-line method but rather the accelerated method where as if they are…...

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