Depreciation, depletion, and amortization:
A)All refer to the process of allocating the cost of long-term assets used in the business over future periods.
B)All generally use the same methods of cost allocation.
C)Are all handled the same in arriving at taxable income.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Depreciation, depletion, and amortization are all methods of allocating the cost of long-term assets used in the business over future periods. However, each method is specific to a particular type of asset. Depreciation is used for tangible assets (e.g. buildings, machinery, vehicles), depletion is used for natural resources (e.g. oil and gas reserves, timberlands), and amortization is used for intangible assets (e.g. patents, copyrights, goodwill). While they may use similar methods of cost allocation, they are not all handled the same in arriving at taxable income. Each method has its own rules, limitations, and special treatments under the tax code.

Depreciation, Depletion, and Amortization