Illustrate the significance of depreciation and income taxes?
Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video
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Depreciation is the charge against the usage, wear and tear or obsolescence of the asset in the course of business. When an asset is purchased, the related expenses of purchase of asset are capitalized and they are gradually charged to books of accounts in the form of depreciation charges over the useful life of the asset, which leads to gradual decline in the book value of the asset.
Income taxes are the tax on income which is payable as per prevalent taxation rules of the state and is computed as per the taxation laws. It is not necessary that the accounting income and the taxable income as per income tax provisions are same. There may few revenues which might be exempt from taxation and few expenses which are disallowed or allowed for a different value in accordance with taxation laws.
Both depreciation expenses and income taxes are charges against net income of the business.
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