Amortization of assets allows the business to allocate a total amount from each
accounting period due to the consumption of fixed assets over time. The useful economic
life of the asset is an important factor here, it determinates the years in which the company
will be able to produce a return of costs. There are various methods of amortization
available but that isn’t the reason why depreciation tends to create many difficulties.
The main aim of this article is to discuss the differences and the similarities between
amortization done on the basis of tax legislation on one side and accounting on the other.
My analysis outlines the most important problems with which most of corporations come
in contact when running a company. Amortization is one of the options offered by the
legislation which is used to decrease the company’s costs. This process takes a lot of
practice in interpreting tax regulations and accounting principles. The main problem arises
because both tax regulations and accounting regulations require to conduct two different
types of records for two different purposes. On one hand, the goal is to fulfill the obligations
imposed by corporate incorporate tax. On the other, we are dealing with activities
that give us information about the financial situation and development opportunities of the
company. A thorough analysis of the rules gives a clear picture of disparity in the
regulation of depreciation of fixed and intangible assets. Common practice shows that you
can keep records of fixed assets and intangible assets subject to amortization for accounting
purposes, and then use that information within the requirements imposed by tax
regulations. A well supported plan of ways how to conduct a business can support this
thesis. Therefore, a full knowledge of both kinds of regulations as well as experience are
necessary. It allows the business to make the most economic decision when it comes to
choosing the method or time of amortization etc.
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