DEPRECIACION Y AMORTIZACION EN ESTADOS FINANCIEROS

Summary

This video tutorial explains the application of depreciation and amortization in financial statements. It covers the distinction between depreciation for fixed assets and amortization for deferred assets, as well as the various methods of depreciation, including straight-line, sum of digits, and units produced. The tutorial demonstrates how to calculate and record these adjustments using examples, focusing on real estate and installation expenses. Additionally, it provides practical guidance on how these adjustments impact the balance sheet and income statement. The goal is to help users understand how to accurately reflect depreciation and amortization in financial reports.

Takeaways

• 😀 Depreciation and amortization are applied to fixed assets and deferred assets, respectively, in financial statements.
• 😀 Depreciation applies to physical assets like computers and office equipment, while amortization applies to intangible or deferred assets like insurance premiums and prepaid rents.
• 😀 The key difference between depreciation and amortization is that depreciation affects tangible assets, while amortization impacts intangible or time-bound assets.
• 😀 Depreciation methods include straight line, sum-of-the-years-digits, and units-of-production, with each calculating depreciation differently based on asset use over time.
• 😀 The straight-line depreciation method results in equal depreciation amounts over the asset's useful life, calculated by dividing the original cost minus the salvage value by the asset’s lifespan.
• 😀 The sum-of-the-years-digits method results in higher depreciation costs in the initial years, which decreases as the asset ages.
• 😀 The units-of-production method calculates depreciation based on actual usage, such as hours worked, mileage, or units produced, making it more variable depending on asset utilization.
• 😀 Amortization typically follows a contract or a fixed percentage, such as 5% for installation expenses, and it is usually calculated monthly or annually.
• 😀 To record depreciation and amortization, their impact must be reflected in financial statements, adjusting values accordingly in the balance sheet and income statement.
• 😀 A practical example of depreciation and amortization was illustrated using an office building and installation costs, applying the methods discussed to calculate monthly depreciation and amortization.
• 😀 The final balance sheet and income statement are adjusted for depreciation and amortization, ensuring the assets and expenses are correctly reflected, leading to a balanced financial statement.

Q & A

What is the purpose of depreciation and amortization in financial statements?

Depreciation and amortization are applied to financial statements to account for the reduction in the value of fixed assets and deferred assets over time. Depreciation applies to tangible assets like machinery and buildings, while amortization is used for intangible assets like insurance premiums and prepaid expenses.

What is the primary difference between depreciation and amortization?

The key difference is that depreciation applies to tangible fixed assets, such as computers and office equipment, which lose value due to wear and tear or obsolescence. Amortization, on the other hand, applies to intangible assets or deferred costs, like insurance premiums or lease agreements, and is typically based on time rather than physical usage.

How are fixed assets treated differently from deferred assets in terms of depreciation and amortization?

Fixed assets, like buildings and machinery, lose value due to use or obsolescence, and depreciation is applied accordingly. Deferred assets, like prepaid insurance or paper goods, do not lose value physically but are consumed over time, which is why amortization is used to allocate their cost across the time period they are used.

What types of assets are not subject to depreciation or amortization?

Land is not subject to depreciation because it does not wear out or lose value over time. Also, certain deferred assets, such as some forms of prepaid expenses or premiums, may not have a residual value and are fully amortized once used up.

What are the different methods used for calculating depreciation?

The main methods for calculating depreciation are: 1) Straight-Line Depreciation, where the same amount is depreciated each year; 2) Sum-of-the-Years-Digits, which accelerates depreciation in earlier years; and 3) Units of Production, which is based on the asset's usage or output over time.

How does the straight-line depreciation method work?

The straight-line method calculates depreciation by dividing the original cost of the asset minus its salvage value by its useful life. The resulting annual depreciation amount is the same each year over the asset's life.

How does the sum-of-the-years-digits method differ from the straight-line method?

In the sum-of-the-years-digits method, the depreciation amount is higher in the earlier years of an asset's life and decreases over time. This method is more suited to assets that lose value more quickly in the beginning.

What does the units-of-production depreciation method consider?

The units-of-production method bases depreciation on the asset's usage, such as the number of units produced or the number of hours worked. This allows for more depreciation in periods where the asset is used more, and less when usage decreases.

How is amortization calculated for deferred assets like installation expenses?

Amortization for deferred assets, such as installation expenses, is typically calculated by applying a fixed percentage to the cost, based on the expected useful life or the terms of a contract, and then adjusting it monthly or yearly.

What impact does depreciation and amortization have on financial statements?

Depreciation and amortization reduce the book value of assets on the balance sheet and are recorded as expenses on the income statement. This reduces taxable income and the reported profits of the company, impacting both the balance sheet and income statement.