Accounting chapter 12 (Depreciation and Disposal of Non-Current Asset) Flashcards
How many methods are there for calculating depreciation?
3 methods
What are the 3 methods of calculating depreciation?
. Straight-line method
. Reducing balance method
. Revaluation method
What is depreciation?
An estimate of the loss in value of a non-current asset over its lifespan.
What are the 4 causes of depreciation?
- Physical deterioration
- Economic reasons
- Passage of time
- Depletion
What is the straight-line method?
The same amount of depreciation is charged every year.
What is the formula for Straight-line method?
Cost of asset / Years of expected use
Define residual-value.
The value of a Non current asset at the end of its lifespan.
What is the Formula for residual value?
(Cost of Asset - Residual Value) / Years of use
What is the Reducing Balance method of depreciation?
The method where the depreciation charged each year decreases as it is calculated on Net Book value.
How to obtain Net Book Value (NBV)?
The cost minus the total depreciation to date.
What is the Revaluation method?
Where the opening and closing value of a Non-current asset are compared (after adjustings are made) to determine the depreciation for the year
When is the Revaluation method used?
When there are no detailed records kept
When is the straight-line method used?
When the value received from the object over the years is constant. Ex:(Table)
When is Reducing Balance method used?
When the value received from the object through out the years is not constant. Ex:(Motor vehicle)
