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# 9.5 Depreciation PowerPoint PPT Presentation

9.5 Depreciation. Decreasing the value of a fixed asset over its useful life. What is Depreciation?. FIXED ASSETS Examples: Office Furniture Automobile Building Except Land We do not depreciate land. What do we Depreciate?.

9.5 Depreciation

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## 9.5 Depreciation

• Decreasing the value of a fixed asset over its useful life

### What is Depreciation?

• FIXED ASSETS

• Examples:

• Office Furniture

• Automobile

• Building

• Except Land

• We do not depreciate

land

### What do we Depreciate?

• To show original cost of fixed assets and amount used up over fiscal period

• To help financial statements up-to-date

### Why do we Depreciate?

• Straight Line Depreciation

- Divides up the net cost of the asset equally over the years of the assets life

• Declining Balance

- A method of calculating the annual depreciation of an asset as a fixed percentage of the remaining value of the asset

### Methods of Depreciation

• Eg. A business purchases a new company car on January 1, 2006.

Straight Line --

Estimate value of asset at end of its useful life

Cost – Salvage Value

Estimate life in years

Jan. 01, 2006

Cost of car \$20 000

Estimated Salvage Value\$5 000

Estimated Years of Life5 Years

20 000 -5 000

5 years

### Straight Line

Keeps track of total deprecation  “CONTRA ASSET” (CR)

20 000 -5 000

= 3 000

5 years

Expense  I/S

### Salvage Value

• Accumulated depreciation account is a valuation or contra account, that keeps track of total depreciation

• Valuation- one that is used, together with an asset account to show true net value of asset

### Accumulated Depreciation

• Jan 01 – Journalize the purchase of the automobile.

• Dec. 31, 2006 – Journalize the adjustment to record the 1st year of deprecation

Automobile20 000

Bank20 000

Depreciation Expense- Auto3 000

Accumulated Deprecation- Auto 3 000

Contra Asset

• Dec. 31 2007, 2008, 2009, 2010- Journalize the adjusting entries for depreciation for each following year.

Depreciation Expense- Auto3 000

Accumulated Deprecation- Auto 3 000

### All the same!!

• Dec. 31, 2010 – Journalize the entry if the business sells the auto at the end of the five years for \$5 000

Bank 5 000

Acc. Dep.- Auto15 000

Automobile 20 000

• Declining Balance –

• Eg. Auto- 30%

Government %, pg. 345 in text

+ 4 200

+ 2 940

+ 2 058

### B) Declining Balance

+ 1 440.60

• Journalize the adjusting entries to record the depreciation for:

• Dec. 31, 2006 (year 1)

• Dec. 31, 2007 (year 2)

Depreciation Expense- Auto 6 000

Accumulated Deprecation- auto 6 000

Depreciation Expense- Auto 4 200

Accumulated Deprecation- auto 4 200

• Dec 31, 2008 (year 3)

Depreciation Expense- Auto 2 940

Accumulated Deprecation- auto 2 940

• How much depreciation was accumulated (contra asset) after year 3?

• \$13 140

• How much depreciation was used up in year 3?

• 2 940 (expense)

• Depreciation calculations are recorded in the Adjustment Columns on the worksheet. You must extend these entries to the appropriate columns!

Depreciation Expense- Auto will extend to the __ side of the __________ because it is treated like any other ______. (p. 343)

Accumulated Depreciation- Auto is extended to the __ side of the ____________. Accumulated Depreciation is an example of a _____ account because it has the opposite balance of normal assets. (p.344)

DR

Income Statement

Expense

Balance Sheet

CR

Contra

9.5 Depreciation pg. 336-348

• Read p. 341-344 in textbook, review the worksheet, income statement & balance sheet

• Answer Exercise questions #1,2 p. 348-349 (t), p. 242-243 (w)

• Ex. # 3,4,6 p. 308-309 (t), p.219-222(w)

• Ex. 1 Parts A, B, C, D (P. Tang) p. 320 (t), p. 223-227 (w)