Accounting Study Guide
 U.S. GAAP Codification Accounting Topics

 Depreciation Methods

 U.S. GAAP Codification,  Accounting by Topic,  Accounting Terms Financial Accounting,  Intermediate Accounting,  Advanced Accounting

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

 U.S. GAAP Codification 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