Week 6 Depreciation Methods

Week 6 Depreciation Methods - rate = 100 Useful life =...

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12/10/10 Depreciation Methods Cost - Salvage Value Useful life Depreciation Expense for Period = $9,000 Depreciation Expense per Year = $50,000 - $5,000 5 years = Dr. Cr. Depreciation Expense - 9000*2/12 1,500 Accumulated Depreciation - Equipment 1,500 To record annual depreciation P 2 If you purchase the equipment in the middle of the year you need to adjust the depreciation for the year, If you purchased it on November 1, you only have 2 months of depreciation for the first year
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12/10/10 Straight-Line Method Cost - Salvage Value Useful life Depreciation Expense for Period = $9,000 Depreciation Expense per Year = $50,000 - $5,000 5 years = Dr. Cr. Depreciation Expense 9,000 Accumulated Depreciation - Equipment 9,000 To record annual depreciation P 2
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12/10/10 Depreciation Repair Expense Expense Early Years High Low Later Years Low High Early years’ total expense approximates later years’ total expense. Declining Balance Method P 2
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12/10/10 Double-Declining-Balance Method Step 2: Double-declining- balance rate = 2 × Straight-line rate = 2 × 20% = 40% Step 1: Straight-line
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Unformatted text preview: rate = 100 % ÷ Useful life = 100% ÷ 5 = 20% Step 3: Depreciation expense = Double-declining-balance rate × Beginning period book value 40% × $50,000 = $20,000 for 2008 P 2 12/10/10 2008 Depreciation: 40% × $50,000 = $20,000 Double-Declining-Balance Method 2009 Depreciation: 40% × ($50,000 - $20,000 ) = $12,000 P 2 12/10/10 Depreciation Accumulated Book Year Expense Depreciation Value 50,000 $ 2008 20,000 $ 20,000 $ 30,000 2009 12,000 32,000 18,000 2010 7,200 39,200 10,800 2011 4,320 43,520 6,480 2012 2,592 46,112 3,888 46,112 $ Below salvage value Double-Declining-Balance Method P 2 12/10/10 Depreciation Accumulated Book Year Expense Depreciation Value 50,000 $ 2008 20,000 $ 20,000 $ 30,000 2009 12,000 32,000 18,000 2010 7,200 39,200 10,800 2011 4,320 43,520 6,480 2012 1,480 45,000 5,000 45,000 $ We usually must force depreciation expense in the last year so that book value equals salvage value . Double-Declining-Balance Method P 2...
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