Info 1: depreciation income definition
Info 2: how depreciation income works
Info 3: depreciation income vs amortization income
Info 4: example of depreciation income
Opening information:
Depreciation income is broken into two words depreciation and income, depreciation means the deduction of an item because of a decrease in value, and income means earnings.
Depreciation income is earnings that are made from the deduction from one asset’s decreased value, so now let’s have a look at what is depreciation income, how depreciation income works in the public market, and what the difference between depreciation and amortization income, finally one clear example about the depreciation income.
Info 1: depreciation income definition
Mr.Nathim is a businessman, who was the CEO of the automobile Industry for almost 12 years and he owned about 26 percent of the company with a total of 46 partners for the whole business.
However, Nathim automobiles which were purchased before the 3 years had a reduction in the asset value of 18 percent. That 18 percent of the automobile reduction is taken in the tax payment as expenses indeed paying a full tax on their income.
But this reduction of value in the asset of automobile would be continued in the future year by year and the business also allowed to take that reduction amount as expenses without paying any taxes for such spending.
Here the 18 percent of the devaluation for the Nathim automobile is what is called depreciation.
Because any of the industries or organizations that had a reduction of devaluation in their assets would be called a depreciated.
The things that don’t have any decrease in the value of their business product are not able to report any depreciated expenses to internal revenue service or depreciated income to their shareholders.
This same concept would be applied to each of the public Corporations in the stock market.
So let’s dive into how this depreciation is involved and works in the public market.
Info 2: how depreciation income works
Depreciation doesn’t represent any specific amount of object or things instead it’s an accounting term for money that is received on behalf of the value reduction.
Any of the items that are used in a business and Investment are based on the reduced value of one item, which is the money received without paying a tax as an allowance for depreciation, then such income is considered as depreciation income.
This depreciation income is reported in the income statement and as well as the cash flow statement to notify whether a certain deduction of money for depreciation is received inside the company or not.
If any of the public industry uses multiple cars for different purposes, most of the cars would have had a strong decrease in value after some time from the purchase period.
The business that deducts depreciation expenses from the made income becomes a tax-free income, which that depreciation deduction is known as depreciation income.
Supposedly if such deductions are used in car expenditures then such spending is only named and accounted as expenses of depreciation in the cash flow statement not as income.
On the other hand, this might be a little tricky to understand, the depreciation stated the decrease in the value of one time. Such depreciation is received as income or expenses inside the company based on does the company spends it a such depreciation or not.
If depreciation is a deduction that is taken as an expense used to improve the car again, then it does not come in an income. or if such deductions are not used to improve it or spend it on anything, then such depreciation deductions are received as income.
Most people confuse depreciation and amortization income, so let’s jump into the key difference in it anyway.
Info 3: depreciation income vs amortization income
The difference between depreciation income and amortization income is, that depreciation income are the one which are refers to the money deducted for the decrease in the value of physical assets.
On the other side, amortization income is the one which refers to the money deducted from paying the fixed loan amount as much as possible as income in the cash flow statement.
So the key difference between the depreciation income and amortization income are physical and nonphysical income. So let’s look into one brief example of depreciation income.
Info 4: example of depreciation income
Say company Y is the one, which is the cool drinks Industry that had 12 billion dollars in net income every year.
They had hundreds of equipment inventories to generate millions of cool drinks, and all the inventories were allowed to take a deduction based on the value of one item, which was about 150 million dollars.
Here the deduction of 150 million dollars is considered as a depreciation of company Y.