writing off
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
08 January 2011
why is depriciation and goodwill written off also discount.
09 January 2011
please be clear in query.
03 August 2025
Good question! Here’s why depreciation, goodwill write-off, and discount are recorded (or “written off”) in accounting:
1. Depreciation Write-Off
What: Depreciation is the systematic allocation of the cost of a tangible fixed asset (like machinery, vehicles, buildings) over its useful life.
Why: Assets lose value over time due to wear and tear or obsolescence. Writing off depreciation in each accounting period matches the expense with the revenue the asset helps generate, reflecting a more accurate profit.
Purpose: It reduces the asset’s book value gradually and shows the true expense of using the asset.
2. Goodwill Write-Off (Amortization or Impairment)
What: Goodwill arises when a company acquires another business for more than its net tangible assets’ value.
Why: Goodwill is an intangible asset but may lose value over time due to business changes or market conditions.
Write-off: Goodwill can be amortized (spread out over years) or impaired (written down if its value drops significantly).
Purpose: To reflect the decline in value of goodwill, ensuring the balance sheet shows realistic values.
3. Discount Write-Off
What: Discounts given to customers reduce the sales revenue.
Why: When a company offers a discount (e.g., early payment discount or trade discount), it reduces the amount receivable.
Write-off: The discount is recorded as an expense or reduction of income to reflect the actual amount earned.
Purpose: To show true net revenue and proper profit measurement.
Summary:
Item Why Written Off Purpose
Depreciation To allocate asset cost over useful life Match expense with revenue; reflect asset use
Goodwill To reduce value due to impairment or amortization Reflect realistic asset value
Discount To reduce revenue for price concessions Show true net sales and profitability
1. Depreciation Write-Off
What: Depreciation is the systematic allocation of the cost of a tangible fixed asset (like machinery, vehicles, buildings) over its useful life.
Why: Assets lose value over time due to wear and tear or obsolescence. Writing off depreciation in each accounting period matches the expense with the revenue the asset helps generate, reflecting a more accurate profit.
Purpose: It reduces the asset’s book value gradually and shows the true expense of using the asset.
2. Goodwill Write-Off (Amortization or Impairment)
What: Goodwill arises when a company acquires another business for more than its net tangible assets’ value.
Why: Goodwill is an intangible asset but may lose value over time due to business changes or market conditions.
Write-off: Goodwill can be amortized (spread out over years) or impaired (written down if its value drops significantly).
Purpose: To reflect the decline in value of goodwill, ensuring the balance sheet shows realistic values.
3. Discount Write-Off
What: Discounts given to customers reduce the sales revenue.
Why: When a company offers a discount (e.g., early payment discount or trade discount), it reduces the amount receivable.
Write-off: The discount is recorded as an expense or reduction of income to reflect the actual amount earned.
Purpose: To show true net revenue and proper profit measurement.
Summary:
Item Why Written Off Purpose
Depreciation To allocate asset cost over useful life Match expense with revenue; reflect asset use
Goodwill To reduce value due to impairment or amortization Reflect realistic asset value
Discount To reduce revenue for price concessions Show true net sales and profitability
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