Depreciation and fixed assets Flashcards
What does a depreciation affect?
A fixed asset
Loss in value of a fixed asset due to wear and tear and the passage of time
Decrease value
Method of matching the cost of fixed asset against the revenues that the fixed asset with help produce during it’s useful life
Allocated expense
What does an amortization affect?
An intangible asset
What is the one fixed asset that cannot depreciate under the generally accepted accounting principals?
Land
What are the depreciable three?
- The asset account
- Depreciation expense
- Accumulated depreciation
Portion of the original cost of the asset that is assigned as an expense to the reporting period expected to benefit it’s use
Depreciation expense
Contra account that adversely effects the value of the asset (continues to accumulate depreciation)
Book value = original cost - accumulated depreciation
Accumulated depreciation
What is the book value
How much the asset is worth at it’s current state
Account that never pays anything out of pocket for depreciation, but recognizes it as an expense
Non cash expense
What are the 4 main issues that depreciation deals with?
- Cost measurement
- Matching revenues to expenses
- Improve/ maintain assets
- End of life options
Amount originally paid for asset
-Will show in the T chart and depreciate by year
Original cost
Estimated calue of a fixed asset at the end of it’s useful life
Salvage value
What is the depreciation equation?
Depreciation value (total amt of depreciation = Original cost - salvage value
Estimated determinable life of a fixed asset
Useful life
What does SWAG stand for?
Scientific Wild Ass Guess
What are the three methods of depreciation?
- Straight line method
- Double declining balance / accelerated depreciation method
- Units of production method
Depreciation cost basis of an asset is appointed equally over it’s estimated useful life expressed in terms of either months or years
Straight line depreciation
What equations are used for the straight line method of depreciation?
Depreciation value = cost of the asset - estimated salvage value
Yearly depreciation = depreciable value / useful life
Depreciation expense is calculated as a constant percentage of the assets book value at the beginning of each period
Double declining method of depreciation
What are the equations used in the double declining method
Useful life of x years –> yearly depreciation = 1/x –> calculate percentage
Calculated percentage * 2 = Double declining percentage
A method in which the depreciation expense is allocated to the assets use in operation
-Depreciation value is divided by an anticipated number of units of usage (ex. days, funerals, uses. …)
Units of production depreciation
What are the equations for the units of production method of depreciation?
Depreciable value = cost of asset - salvage value
Per use depreciation = depreciable value / total useful life
Depreciation value for intangible assets
-Straight line method
-No contra asset, just the book value that goes on the balance sheet
-Debit is made to ___ expense account, credit is made to intangible asset account
Amortization
