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Homework: Page 348 Exercise 1 (A,B,C)
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BAF3MCalculating
Depreciation II
Homework check
Page 348 Exercise 1 (A,B,C)
Page 358 Exercise 4 (A,B)
Homework: Page 348 Exercise 1 (A,B,C)
Homework: Page 358 Exercise 4 (A,B)
The TWO main ideas on how to calculate depreciation:
Straight Line Depreciation
Declining Balance Depreciation
Straight Line Depreciation
original cost – residual value---------------------------------- years of life of the asset
(Straight line depreciation spreads the use of our asset evenly over the amount of time it is used.)
Declining Balance
Let’s say we bought a car… does it lose its value evenly?
Declining Balance
With declining balance, we take off a certain percentage each year.
Year 1 Depreciation= 30% * $100,000
car= $30,000
Declining Balance
Year 2 Depreciation
Undepreciated Value of $70,000
x 30% = $21,000
Declining Balance
Let’s look at a depreciation schedule…
Year30% Depreciation
UndepreciatedValue
0 $100,0001 $30,000 $70,0002 $21,000 $49,0003 $14,700 $34,3004 $10,290 $24,0105 $7,203 $16,807
30% is taken off each year
Compare! (Straight Line vs. Declining Balance)
Year30% Depreciation
UndepreciatedValue
0 $100,0001 $30,000 $70,0002 $21,000 $49,0003 $14,700 $34,3004 $10,290 $24,0105 $7,203 $16,807
Year Straight LineUndepreciatedValue
0 $100,0001 $18,000 $82,0002 $18,000 $64,0003 $18,000 $46,0004 $18,000 $28,0005 $18,000 $10,000
* 10,000 residual value: 5 year useful life*
The TWO main ideas on how to calculate depreciation:
Straight Line Depreciation
Declining Balance Depreciation
NoteNote:DepreciationWith the exception of Land, all fixed assetsare expected to be ‘used up’ over a certainperiod of time. These assets decrease(or depreciate) in value.
Methods of DepreciationStraight-Line depreciation dividesthe price of an asset over its useful life. (minus itssalvage or residual value)
Declining Balance methoddecreases the value of an assetby a pre-determinedpercentage each fiscal period.
The following ‘Depreciation Schedules’ compare the two approaches.
Year30% Depreciation
UndepreciatedValue
0 $100,0001 $30,000 $70,0002 $21,000 $49,0003 $14,700 $34,3004 $10,290 $24,0105 $7,203 $16,807
Year Straight LineUndepreciatedValue
0 $100,0001 $18,000 $82,0002 $18,000 $64,0003 $18,000 $46,0004 $18,000 $28,0005 $18,000 $10,000
* 10,000 residual value: 5 year useful life*
Declining Balance
HomeworkPage 348, Exercise 1 (D,E) Exercise 2 (A,B)
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