3.4 HL

Question 1

Haiku unit 4 practice!!!

Answer 1

Unit 3.4 to finish in unit 4

Question 2

What is depreciation

Answer 2

The value of an assets declines over time

This needs to go into the final accounts and P&L

Question 3

What is straight-line depreciation

Answer 3

The amount that an asset decreases every year is constant

Question 4

Example of straight-line depreciation

Answer 4

Example

A delivery company purchases a new van for $16,000

They will sell it in 4 years for an expected value of $4,000

Annual depreciation=

Original value- expected residual value/expected future life of asset

16,000 - 4,000 = 12,000, 12,000/4 = 3,000

Question 5

What is reducing balance depreciation?

Answer 5

The percentage that an asset decreases every year is constant

Question 6

Example of Reducing balance depreciation

Answer 6

Example

A delivery company purchases a new van for $16,000

They will sell it in 4 year

They will use 30% depreciation on the van

Annual depreciation=

Depreciation rate x current value

0. 3 x 16,000 = 4,800 | 16,000 - 4,800 = 11,200
1. 3 x 11,200 = 3,360 Etc.

Question 7

Strengths of Straight-line deprecition

Answer 7

Simpler and less time-consuming to calculate

Reducing balance indicates more accuracy. This could be inaccurate as its still an estimate

Question 8

Strengths of Reducing balance depreciation

Answer 8

More realistic

Assets can generate more profitability early on in their life, so arguably more accurate