Basis of Depreciation

In: Business and Management

Submitted By Rickyf
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Basis of Depreciation 1

Basis of Depreciation
A Comparison Between Generally Accepted Accounting Principles (GAAP) and Income Tax Basis

Basis of Depreciation 2

Abstract
The basic concept of depreciation is based on the assumption that most property, plant, and

equipment assets or depreciable assets have a useful life over which they are consumed. The

portion of these depreciable assets consumed through usage or obsolescence is what

accountant refers to as depreciation. The measurement of depreciation according to Generally

Accepted Accounting Principles (GAAP) follow the “cost principle” and “matching principle”; in

that depreciable assets cost should be valued at their original or historical cost, and that

depreciation expense is recognized in the same period the benefit was derived from the

consumption of the said asset. On the other hand, Income Tax Basis follows the concept of

“recovery period”; in that businesses recover the cost of the depreciable assets faster because

the period (useful life) is accelerated. This paper will compare and contrast Income Tax

Basis for depreciation and GAAP basis for depreciation.

Basis of Depreciation 3
Basis of Depreciation
A Comparison Between Generally Accepted Accounting Principles (GAAP) and Income Tax Basis Depreciation in its simplest definition is the calculated wear and tear of a depreciable

asset due to its use in business. The value assigned to the calculated wear…...

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