Thesis: Depreciation and Amortizations

Sample Thesis Paper

Depreciation is usually done periodically by a business on its assets. Depreciation results from the use of the tangible assets and its effect are to reduce the total value of assets (Beaver and Ryan, 2000). The term book value is actually coined from the value of assets that remains after depreciation is subtracted. The amount is referred to as the book value since the depreciation is only made on paper and the amounts put in a reserve account that is used in the purchase on new assets or in the maintenance of the existing assets.

Depreciation does not result in an actual outflow of resources from the business (Penman, 1998). As a result the total assets held by the business remain the same. However the theoretical calculations change due to the classification of assets that result. The amounts of reserves resulting from depreciation are added to the value of assets in the calculation of the book value depending on the use of the book value calculated. Amortization is similar to depreciation only that it applies to intangibles assets. Amortization also results in the creation of reserves that can be included in the calculation of the book value depending on the use of the calculations. When the fair values of the assets are used in the calculation of book value, real depreciation may cause the book value to decline over time unless retained earnings compensates for the decline (Goodwin and Ahmed, 2006).

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