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3.4: Final Accounts (Different Types of Intangible Assets (Marketing…
3.4: Final Accounts
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Depreciation of Assets
The Straight-Line Method
straight-line depreciation: a constant amount of depreciation is subtracted from the value of the asset each year
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annual depreciation charge =
(original or historic cost of asset − expected residual value) / expected useful life of asset (years)
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:forbidden:
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cars, trucks and computers are examples of assets that tend to depreciate much more quickly in the first and second years than in subsequent years
no recognition of the very rapid pace at which advances in modern technology tend to make existing assets redundant
repairs and the maintenance costs of an asset usually increase with age and this will reduce the profitability of the asset
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depreciation attempts to record capital expenditure over the useful life of an asset and avoids recording this expenditure as a one-off cost
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