Why can depreciation and amortization repay the loan principal?

Depreciation and amortization can enter the cost, thus reducing the income tax payable. Because less income tax is paid, the cash outflow is reduced, which is commonly called depreciation tax deduction. Therefore, the cash outflow is reduced. The cash saved can be used to repay the loan. To put it simply: profit+depreciation+amortization is equivalent to the current cash balance.

Depreciation of fixed assets. In view of the fact that the fixed assets have not been updated at the initial stage of the project, the depreciation fund which belongs to the nature of fixed assets replacement reserve after extraction is temporarily idle.

Therefore, in order to effectively use all possible sources of funds, shorten the repayment period and enhance the solvency of the project, part of the newly-increased depreciation funds can be used as the source of loan repayment. Amortization of intangible assets is included in the total project cost according to the current financial system. However, after the amortization fee is withdrawn from the project, there is no specific use regulation for this fund, which belongs to the nature of "precipitation" and can be used to repay the loan.

Extended data

Accelerated amortization method refers to an accounting method that amortizes the amortization amount of intangible assets in each amortization period according to the principle of more first and less later, and the amortization amount assumed in each year shows a decreasing trend year by year.

Compared with straight-line amortization, the accelerated amortization method is more in line with the theory of cost compensation, more conducive to the early compensation of costs for enterprises, more conducive to reducing the investment risk of intangible assets and expanding the production and operation of enterprises, so it has higher practical significance.

Necessity:

First, accelerated amortization method is the need of the development of the times.

As a knowledge-based economic resource, intangible assets are becoming more and more important in the knowledge economy, and the proportion of intangible assets based on knowledge will increase greatly, even in the high-tech field. According to statistics, the ratio of tangible assets to intangible assets of some advanced OECD enterprises is1:2-3;

1998 The ratio of intangible assets to tangible assets of China Haier Group is1.78: L. After China joins the WTO, the investment scale and proportion of intangible assets will be further expanded. Therefore, in order to reduce the investment risk of intangible assets and make investors get better economic benefits;

Objectively, investors are required to follow the principle of conservatism in organizing intangible assets accounting to reduce investment risks. The development of the times requires that the amortization method of intangible assets should be diversified and more stable, which provides an opportunity for accelerating the use of amortization method.

Second, meet the requirements of intangible assets characteristics.

The economic value of intangible assets is greatly influenced by external factors, such as technological progress, changes in market demand and competition in the same industry. Therefore, on the one hand, its expected profitability has great uncertainty, on the other hand, it is difficult to determine how much economic benefits intangible assets can bring to enterprises.

It can be seen that intangible assets investment is a high-risk investment project, and the success rate of investment is not high. The intangible assets that have been obtained may also lose their due role because of technological progress or accidental business mistakes. Therefore, protecting investors' investment interests in this respect is the key to intangible assets investment.

The application of accelerated amortization method in intangible assets accounting is conducive to protecting the interests of investors and preventing investment risks, so it can better meet the requirements of intangible assets, thus making the application of accelerated amortization method possible.

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