《会计学原理教学资料》Chapter_10.pptVIP

* There are three popular methods of calculating depreciation expense. The easiest and most widely used method is called straight-line depreciation. When equipment use varies from period to period, the units-of-production depreciation method can better match expenses with revenues. Units-of-production depreciation charges a varying amount to expense for each period of an asset’s useful life depending on its usage. The third method is called the declining-balance method. Under this method, we take more depreciation expense in the early years of the asset’s life and lower amounts of depreciation in later years. Several income-tax depreciation calculations are based on the declining balance method. On your screen is the asset we will depreciate using the three methods listed. Let’s begin by looking at straight-line depreciation. * Part I Depreciation expense for any given period is determined by taking the asset’s cost less its estimated salvage value and dividing this amount by the asset’s estimated useful life. If we calculate annual depreciation, we would express the useful life in years. Let’s use our specific example to calculate annual straight-line depreciation. Part II As you can see, straight-line depreciation is $1,800 per year. We subtract the salvage value of $1,000 from the cost of the machinery and divide that amount by 5 years. Now let’s make the journal entry to record depreciation expense. Part II To record annual depreciation on this asset we debit Depreciation Expense for $1,800, and credit Accumulated Depreciation – Machinery for the same amount. Accumulated depreciation is another contra asset account. Accumulated depreciation is subtracted from the cost of the asset to arrive a what is called book value. The book value is the amount shown on the balance sheet. * In this graph of each year’s depreciation expense, you can clearly see the straight-line nature of the method. Now we have a graph of the asset’s book value at the end of each year.