Depreciation Expense Assumptions PDF

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Summary

For this course, you will have lectures that will help you on your midterm, final, and projects, I got an A for this course so hope this helps...

Description

Depreciation Expense Assumptions To determine depreciation expense, a company makes three estimates 1. Useful life—period of time over which the asset is expected to generate measurable benefits 2. Salvage value —amount expected for the asset when disposed of at the end of its useful life 3. Depreciation method —estimate of how the asset is used up over its useful life (straight-line method or accelerated methods such as double-declining-balance) Straight-Line Method

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Assume that a company acquires a machine as follows

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With straight-line (SL) method, $18,000 depreciation expense is recognized per year, over the asset’s estimated useful life

Depreciation expense per year = $18,000 = $90,000 / 5 Net Book Value §

Depreciation expense is recognized as follows

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The accumulated depreciation (contra asset) account increases by $18,000, thus reducing net PPE by the same amount At the end of the first year the asset is reported on the balance sheet as follows

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Evaluate asset sales, impairments, and restructuring activities Asset Sales § § § §

The gain or loss on the sale (disposition) of a tangible asset is computed as follows Net book value is acquisition cost less accumulated depreciation When an asset is sold, both the acquisition cost and related accumulated depreciation are removed from the balance sheet Any gain / loss is reported in income from continuing operations...