3.4 Depreciation Flashcards
1
Q
Define Depreciation.
A
The fall in value of a fixed asset.
2
Q
Causes of Depreciation (4)
A
Wear and tear, Obsolescence, Lack of Maintenance, Passing of Time
3
Q
Straight-Line Method
A
- Reduces an asset by the same amount each year
- Calculates the amount it should be reduced by each year.
4
Q
Formula of Annual Depreciation (Straight-Line Method)
A
Annual Depreciation = (Purchase Cost - Residual Value) / Expected Years of Ownership
5
Q
Define Residual Value.
A
Expected selling value of the asset at the end of the life of the lifespan of the asset.
6
Q
Disadvantages of Straight-time Method.
A
Not mark-down in a fixed rate. It’s a constant rate, which is unrealistic.
7
Q
Define Reducing Balance Method.
A
Reduces the value of an asset by the same percentage each year.
8
Q
Formula of Reducing Balance Method (Net Book Value)
A
NBV = Historical Cost less Accumulated Depreciation.
