Explaining Depreciation and Amortization
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Explain the concepts of depreciation and amortization with cited sources.
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Solution Summary
The definitions for depreciation and amortization are given.
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Depreciation is an expense that spreads the cost of the asset over its useful life. The following example illustrates the matching principle in relation to depreciation.
An asset costs $100,000. It is expected to have a life of four years and have a resale value of $20,000 at the end of that time. The depreciation charge is:
(Asset cost - resale value) / expected life = (100,000 - 20,000) / 4 = $20,000 per year.
It ...
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