Sabanes Oxley Act of 2002

2009 Words9 Pages
Depreciation and depletion are two models of computing financial reports. These techniques are used as adjustments when preparing statements of cash flow within the direct or indirect method. This paper will identify and examine the methods of depreciation and depletion, describe the difference between the methods, and compare and contrast depreciation and depletion as well using scholarly references to support the points.
Net income is reduced through depreciation and is an expense of the company. It does not reduce cash of the company. This adjustment does not involve the calculations of current cash flow. Calculations should be put back on net income in order to produce the outcomes of cash that has been provided by the operations of
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The sum of year method is also known as amortization and accelerated depreciation techniques. It is put to use when one applies intangible assets and is an acceptable way to calculate cost allocation. (Noland, 2011) Many used to see this method as producing the best possible cost allocation outcomes.
The sum of the year model is mostly used by regulated industries and banks. (Noland, 2011) It is acceptable to use this method to report finances, but is not acceptable to use for reporting taxes. This method was used by many until it was no longer acceptable to use for reporting taxes.
This occurred when the Accelerated Cost Recovery System was placed. Noland (2011) stated that this act, that was placed in 1981 "specified both the life of the asset and the depreciation rate for tax purposes" (p. 2). This system has changed and has been renamed and is now known as MACRS.
The Modified Accelerated Cost Recovery System is another model of depreiciation. The MACRS is the only approved method to use in the US. Using this method, the depreciation always equals 0. Properly is categorized and then placed in classes. These classes normally determine recovery periods, leaving a year longer to recover. With this method, the rates are tabulated. By using the regular MACRS, the recovery periods will be longer. Straight line can be used in combination with MACRS.
The MACRS does not consider

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