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Depreciation Methods


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Depreciation Example 1
 
Cost  $      110,000
Salvage value   $        20,000
Useful life 5
Purchase date January 1, 2011


Straight line depreciation

Year Depreciation  
2011  $        18,000 =($110,000 - $20,000) x 1/5
2012  $        18,000 =($110,000 - $20,000) x 1/5
2013  $        18,000 =($110,000 - $20,000) x 1/5
2014  $        18,000 =($110,000 - $20,000) x 1/5
2015  $        18,000 =($110,000 - $20,000) x 1/5
Total  $        90,000  



Double declining balance depreciation
Depreciation rate = 1/5 x 200% = 40%

Year Book value at the beginning of year Depreciation rate Depreciation expense   Accumulated depreciation Book value at year-end
2011  $      110,000 40%  $      44,000    $     44,000  $     66,000
2012  $        66,000 40%  $      26,400    $     70,400  $     39,600
2013  $        39,600 40%  $      15,840    $     86,240  $     23,760
2014  $        23,760 40%  $        3,760  (*1)   $     90,000  $     20,000
2015  $        20,000 40%  $             -      $     90,000  $     20,000
Total      $      90,000      

(*1) Depreciation stops when accumulated depreciation reaches depreciation base.
Depreciation base = cost - salvage value = $110,000 - $20,000 = $90,000


150% declining balance depreciation
Depreciation rate = 1/5 x 150% = 30%
 

Year Book value
at the
beginning
of year
Depreciation rate Depreciation expense   Accumulated depreciation Book value at year-end
2011  $      110,000 30%  $      33,000    $     33,000  $     77,000
2012  $        77,000 30%  $      23,100    $     56,100  $     53,900
2013  $        53,900 30%  $      16,170    $     72,270  $     37,730
2014  $        37,730 30%  $      11,319    $     83,589  $     26,411
2015  $        26,411 30%  $        6,411  (*2)   $     90,000  $     20,000
Total      $      90,000      

(*2) Depreciation stops when accumulated depreciation reaches depreciation base.
Depreciation base = cost - salvage value = $110,000 - $20,000 = $90,000

 
 
Sum-of-the-years'-digits depreciation

Sum of the years' digits 15 =1+2+3+4+5  
Year Years' digits Depreciation  
2011 5  $     30,000  =($110,000 - $20,000) x 5/15 
2012 4  $     24,000  =($110,000 - $20,000) x 4/15 
2013 3  $     18,000  =($110,000 - $20,000) x 3/15 
2014 2  $     12,000  =($110,000 - $20,000) x 2/15 
2015 1  $       6,000  =($110,000 - $20,000) x 1/15 
Total 15  $     90,000  

 



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U.S. GAAP Codification
International Financial Reporting Standards (IFRS)
 
Accounting Topics
Inventory Valuation Methods
Depreciation Methods
Revenue Recognition Principle
Accrual Basis vs. Cash Basis Accounting
Basics of Journal Entries
Ratios for Financial Statement Analysis
Overview of Financial Statements

 










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