Section 3 - The Straight Line Method of Depreciation Flashcards
To ensure students understand how to calculate full-year and partial-year depreciation using the straight-line method.
When depreciating for book purposes under GAAP rules, generally ______ decides which method of depreciation will be used.
Management, not the bookkeeper.
If an asset has residual value, the asset is considered fully depreciated when
The book value of the asset = Depreciable bae**
Book value = Cost - Accumulated Depreciation (total depreciation taken from year to date)
Depreciable base = Cost - Residual Value
For certain companies. company policy states that if an asset was acquired between the 15th and the last day of the month it is considered to have been purchased at the ______ of the month ____ purchase.
Beginning, Following.
For example, an asset purchased on July 19 for a company which follows the above policy, the asset would be recorded as though it was acquired on August 1. (The beginning of the month after purchase)
The formula below is the calculation to find?
Depreciable Base**
Estimated Useful life in Years
Annual Depreciation Expense
If the asset was not used for an entire 12 months, partial year depreciation applies, which means the full-year depreciation expense must be multiplied by the fraction of the year the asset was in use. For example, an asset that was purchased in April was used for 9 out of 12 months.
Full Year Depreciation x (9/12) = Partial Year Depreciation Expense
Depreciation under the straight-line method can be found by finding calculating the annual depreciation expense or annual depreciation rate.
True or False
True.
MackCO acquired a fixed asset for $37,000 and estimates residual value of $5,000 and an estimated useful life of 4 years. What is the annual depreciation expense using the straight-line method?
Depreciable Base** = $32,000 = $8,000 annual depreciation expense
Estimated Useful life in Years 4
**Please note, Depreciable base = Cost - Residual (Salvage) Value
Journal Entry
Depreciation Expense (DR.) $8,000
Accumulated Depreciation (CR.) $8,000
For certain companies. company policy states that if an asset was acquired between the 1st and the 15th, it is considered to have been purchased at the ______ of the month ____ purchase.
Beginning, Of
For example, an asset purchased on July 11 for a company which follows the above policy, the asset would be recorded as though it was acquired on July 1.
What are the two ways to find depreciation using the Straight-line method?
Under the straight-line depreciation method, the amount of depreciation that should be recognized is found in one of two ways.
- To find the annual depreciation expense, the formula is as follows:
Depreciable Base** = Annual depreciation expense
Estimated Useful life in Years
- To find the annual depreciation rate, the formula is as follows:
1.00 = Annual depreciation rate** (Rate x Depreciable Base)
Estimated Useful life in Years
If an asset was placed in service in May, depreciation is recognized for
Since the asset was not used for the entire 12 month period, this is an example of partial-year depreciation.
The asset is depreciated for 8 out of 12 months.
In the final year, the assets ending book value will appear on the company’s books and balance sheet equal
In the final year, the assets book value will be equal to the residual value, and if no residual value, the asset will be recorded with a book value of zero.
Most depreciation schedules list
Most depreciation schedules list all of the company’s depreciable assets, even those that were fully depreciated years ago and may or may not list assets that are not depreciable such as land.
If an asset has no residual value, the asset is considered fully depreciated when
The book value of the asset = zero
Book value = Cost - Accumulated Depreciation (total depreciation taken from year to date)
Under this method, the same amount of depreciation expense is taken every year
Straight-line
The formula below calculates:
Annual depreciation rate x depreciable base
Annual depreciation expense
Under the straight-line method, the same amount of depreciation expense is taken every year and can be computed in one of two ways; by finding the 1) annual depreciation expense or 2) annual depreciation rate.
The annual depreciation rate is calculated as follows:
_________1.00___________ = Annual depreciation rate** (Rate x Depreciable base)
Estimated Useful life in Years
After the annual depreciation rate is found, the next step is to
After the annual depreciation rate is found, the next step is to multiply the depreciable base by the rate to find full-year depreciation. If the asset was not used for an entire 12 months, partial-year depreciation must be accounted for.
