Quiz 9: P9: Depreciation Deprec

Business

Straight - Line Depreciation: Depreciation under this method is calculated by dividing cost less salvage value by useful life (number of years). Under straight-line method of depreciation, same percentage of asset cost is allocated for the accounting year. img Units - of - Production Method: Activity method of depreciation is also known as units-of-production method which assumes that depreciation is calculated based on use of asset or productivity instead of passage of time. Depreciation is calculated based on actual number of hours it worked or number of units it produces. But depreciation based on the number of machine hours. img Double-Declining Balance method :   A depreciation method which is dependent on a fixed percentage of value reduction of assets over its service life. This method uses a depreciation rate which indicates some multiple of straight-line method. img Compute depreciation under different methods using the worksheet as follows: img Working note: Straight-Line Method: img Hence, depreciation for each year is $80,000. Units - of - Production Method: Year 1: img Year 2: img Year 3: img Year 4: img Double - Declining Balance Method: Year 1: img Year 2: img Year 3: img Year 4: img

In the open worksheet, enter the formulas to calculate depreciation for each year under each method. Use cell references instead of numbers when available so that the spreadsheet updates automatically when any figure is changed. To calculate depreciation using the straight line method, take the cost of the asset less the salvage value and divide it by the number of years of its useful life. You will have the same figure for depreciation for each year. Using the units of production depreciation method, the depreciation is calculated based on the number of units used during that period. To calculate this, subtract the salvage value from the cost of the asset and then divide the total estimated units of production for the life of the asset. You will use that per unit cost and multiply by the estimated units used for the period to determine depreciation cost. The double declining method is used when the depreciation of the asset will be highest during its first few years of life. This value is calculated by 2x the depreciation rate of the straight line method multiplied by the book value at the beginning of the year. When you finish inputting all the formulas, your worksheet should look like this: img

At the end of the period or fiscal year, depreciation needs to be recorded in the books for that year's depreciable assets. The journal entry would be a debit to depreciation expense and a credit to accumulated depreciation. If the depreciation for an asset was $128,000 for a year, the following journal entry should be prepared: img

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