The cost of a long-term asset, such as equipment, is transferred to expense as it is used during its life.?

Question

The cost of a long-term asset, such as equipment, is transferred to expense as it is used during its life. true are false

Answer 1

Anon is wrong. Krissy is right for the most part. The only minor error in her answer is about amortization. Amortization is analogous to depreciation, but it applies to intangible assets. Yes, a premium/discount on a bond is amortized, but so are other intangible assets such as patents, servicing rights, and until a couple of years ago, goodwill.

Answer 2

True, it's called depreciation; amortization is like depreciation but it involves bonds.

There are several ways to depreciate fixed assets, such as double-declining, sum-of-years-digits,and MACRS (for Federal tax purposes), but the most common one is straight-line depreciation; you divide the final cost of the item by the years of useful life.

You do have to be aware of residual value, which means it would have a value at the end if its useful life. If it's small, don't worry about it and just divide the cost by the years; if it's a large figure, you have to subtract it from the initial cost and divide that number by the years

ex. a $4500 truck has a useful life of 10 years
4500/10 = $450 annual depreciation (this amount is
subtracted every year from the initial cost)

if the truck has a residual value of $1000, the amount used would be $3500 (4500-1000).
$3500/10 = $350 annual depreciation

Answer 3

True. it is called amortization. What that does is make capital expenditures manageable. Amortization has to take into account the interest on any loans taken out to pay for that equipment. Think of it as a very large credit card purchase.