Unformatted text preview: ystematic, rational method. Accumulated
depreciation for each asset is recorded in the accumulated depreciation account on the balance sheet (a
contra-asset account). Assets are listed at their Net Book Value. (Building (at cost) - accumulated
depreciation = Net book value)
Important Information to calculate depreciation:
• Acquistion cost: Discussed above!
• Estimated Useful Life: Represents the amount of time or amount of usage a company expects
an asset to be used.
• Estimated Salvage (Residual) Value: An estimate of what the asset will be worth when it will no
longer be used in operations (at the end of its useful life)
Three acceptable depreciation methods under GAAP:
• Straight Line: Most common; assumes an asset will be used over a period of years and then
retired. Calculate depreciation and charge same amount each month.
Calculate by: (Cost-Salvage Value)/# of years expect to use the asset
• Units of Production: Relates depreciation to how much an asset will be used rather than # of
years. Gives you a depreciation rate per unit of production, and then charge by taking that rate
x amount us...
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