Module 4.2 Flashcards
Process of allocating the cost of a plant asset to expense in the accounting periods that benefit (revenue) from its use
Depreciation
What is the purpose of depreciation?
Matching of acquisition cost (unused) and expense (used)
Other term for depreciation
Write-off of cost
4 Depreciation Methods
- Straight-line method
- Double-declining balance method
- Units of production method
- Sum-of-the-year’s digits method
Easiest and most utilized method. Allocates cost evenly over its useful life. A time-based method
Straight-line method
What is the assumption of the straight-line method?
The decline in usefulness occurs evenly over time
Allocate asset cost based on the number of units to be produced over its life. A usage-based method.
Units-of-Production Method
Accelerated method. More depreciation in early years and less depreciation in latter years of life. A time-based method
Declining-balance method
The double-declining balance method is double the ____
Straight-line method
Why use accelerated/declining-balance method?
- Some assets are more efficient in early years
2. Most assets have less related maintenance cost in early years.
Required when a plant asset is acquired during the year, depreciation is calculated for the fraction of the year the asset is owned.
Partial-year depreciation
In partial-year depreciation, most companies allocate to _____.
Closest full month
How to report depreciation?
Property, plant and equipment
Total
Less Accumulated Depreciation
Net Property, plant and equipment
