C describe the different depreciation methods for property, plant, and equipment, the effect of the choice of depreciation method on the financial statements, and the effects of assumptions concerning useful life and residual value on depreciation expense;

Question 0

Depreciation expense: op. Expense

Answer 0

The systematic allocation of an assets cost over time

Question 1

Two important depreciation method terms

Answer 1

Carrying (book) value: net value
For PPE , CV=historical cost-accum. Depr.

Historical Cost: original purchase price of the asset including installation and transportation costs. Aka ‘gross investment in the asset’

Question 2

Economic depreciation

Answer 2

Actual decline in the value of the asset over the period.

Question 3

Depreciation and the analyst

Answer 3

Analyze reported relative to economic

Economic may exceed reported and it’s not true

Question 4

Depreciation Methods

Answer 4

Straight line (depr. Same amount through life)

Accelerated (expense depreciation more early on, less later on) aka lower NI early, higher later

Double Declining Balance Method: DDB has no salv. Value. Depr. Ends when CV=Salvage V

Units of production: depreciation is based on usage. More usage more depr.

Question 5

Calculate depr. Methods

Answer 5

Expense as straight: = cost- SV/Life

Expense as DDB: 2/deprec. Life (beg. CV of year x)

Expense as accelerated: same as straight I suppose but weighted differently….

Expense as units of prod: cost-SV/life in output units (output units in the period)

Question 6

Useful lives and salvage value

Answer 6

*manipulating depreciation expense=manipulating NI aka changing the ACCT ESTIMATE

Life,SV>long>-ann. Depr. >+NI

Acct est. is effective in current period. Previous periods remain unaffected. Current period means eat. Changes CV an depr. Will be calc. Going FORWARD

Question 8

Component Depreciation(IFRS)

Answer 8

Depreciate asset components separately

Everything is depreciated separately.

Question 9

Depreciation effects on NI and Profit Margin

Answer 9

Straight line - No change

DDB - +NI, +Profit margin through time

Units of Production Methods - +NI, +Prof. Margin when units begin to depreciate.