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Financial statements
Depreciation and amortisation
Spreading the cost of a long-lived asset over the years it is used, as a non-cash expense. Depreciation for tangible assets, amortisation for intangibles.
Owned by: AnalystTest band: Analyst
The formula
Straight-line depreciation = (Cost − Salvage) ÷ Useful life
In practice
It reduces profit and the asset's book value but not cash — the cash left when the asset was bought. That is why it is added back on the cash flow statement.
The kind of thing the test asks
- Equipment bought for $60k with a 5-year life and no salvage value. Straight-line annual depreciation is…