Methods of Depreciation
Chapters in this video
- 0:00 The non-cash illusion: depreciation defined
- 1:10 Why land is never depreciated
- 2:28 Straight-line versus accelerated methods
- 3:51 Straight-line for GAAP, MACRS for tax
- 5:14 The deferred tax liability from book versus tax
- 5:52 Earnings quality and the accounting-policy footnote
- 6:36 Depreciation, depletion, amortization, impairment
- 7:05 Goodwill: impairment testing, not amortization
- 8:02 Rapid-fire exam recap
What this video covers
- Why depreciation is a non-cash expense and how it reduces reported earnings without reducing cash flow
- Why land is never depreciated, since it has an indefinite useful life
- How straight-line depreciation spreads cost equally across years and is used for GAAP financial reporting
- How accelerated depreciation front-loads expense and why MACRS is used only for tax reporting
- Why using straight-line for books and MACRS for taxes creates a deferred tax liability
- How the depreciation method and useful-life assumption affect earnings quality and where these are disclosed
- The exact vocabulary distinctions: depreciation for tangible assets, depletion for natural resources, amortization for finite-life intangibles, and impairment testing for goodwill
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