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(Fixed Assets)
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LO 2
Depreciation
Over time, most fixed assets (equipment,
buildings, and land improvements) lose
their ability to provide services.
The periodic recording of the cost of fixed
assets as an expense is called
depreciation.
LO 2
LO 2
LO 2
LO 2
Straight-Line Method
The straight-line method provides for the
same amount of depreciation expense for
each year of the assets useful life.
Annual
=
Depreciation
LO 2
Straight-Line Method
Initial cost
Expected useful life
Estimated residual value
$24,000
5 years
$2,000
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Straight-Line Method
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LO 2
$24,000
5 years
40%
$2,000
= $8,800
Book value after 1st year = $24,000 - $8,800 = 15,200
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Depreciation =
(3rd year)
=
Depreciation =
(4th year)
=
Depreciation =
(5th year)
40% X $15,200
$6,080
40% X ($15,200 6,080)
$3,648
40% X ($15,200 6,080 3,648)
$2,188.80
(After 4th year, book value = 3,283.20)
$3,283.20 - $2,000 = 1,283.20
(residual value)
LO 3
Depreciation (Expense)
Accumulated Depreciation (Asset contra)
Depreciation Expense
PPE/Fixed Asset
Equipment Bal c/f 24,000
24,000
24,000
Bal b/f
24,000
24,000
Acc. Depn
8,800
8,800 Depn
8,800
8,800
8,800
Bal b/f
8,800
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Depreciation Expense
PPE/Fixed Asset
Equipment Bal c/f 24,000
24,000
24,000
Bal b/f
24,000
24,000
Acc. Depn
6,080
8,800
6,080
14,880
LO 3
Depreciation Expense
PPE/Fixed Asset
Equipment Bal c/f 24,000
24,000
24,000
Bal b/f
24,000
24,000
Acc. Depn
3,648
3,648
18,528
LO 3
Depreciation Expense
PPE/Fixed Asset
Equipment Bal c/f 24,000
24,000
24,000
Bal b/f
Acc. Depn
2,188.80
24,000
24,000
20,716.80
20,716.80
Bal b/f
20,716.80
LO 3
Depreciation Expense
PPE/Fixed Asset
Equipment Bal c/f 24,000
24,000
24,000
Bal b/f
24,000
24,000
Acc. Depn
1,283.20
22,000
Bal b/f
20,716.80
Depn 1,283.20
22,000
22,000
Bal b/f 22,000
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(continued)
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(continued)
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LO 3
25,000
Book value
= 25,000 25,000
=0
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Equipment
Cost
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LO 3
$600 3/12
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LO 3
Bal b/f
Depreciation Expense
Acc. Depn 150
6,000
4,750
150
4,900
Bal b/f
1,100
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LO 3
(continued)
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LO 3
Bal b/f
Depreciation Expense
10,000 Write-off
10,000
10,000
10,000
Loss
1,250
7,000
750
7,750
Bal b/f
Cash
1,000
LO 3
LO 3
Bal b/f
Depreciation Expense
10,000 Write-off
10,000
10,000
10,000
Gain
7,000
750
7,750
Bal b/f
Cash
2,800
550