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?.

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9.5 Depreciation

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9 5 depreciation

9.5 Depreciation


What is depreciation

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

What is Depreciation?


What do we depreciate

  • FIXED ASSETS

    • Examples:

      • Office Furniture

      • Automobile

      • Building

    • Except Land

      • We do not depreciate

        land

What do we Depreciate?


Why 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?


Methods of depreciation

  • 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


Straight line

  • 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


Salvage value

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

20 000 -5 000

= 3 000

5 years

Expense  I/S

Salvage Value


Accumulated depreciation

  • 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


9 5 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

Adj. Entry

Depreciation Expense- Auto3 000

Accumulated Deprecation- Auto 3 000

Contra Asset


All the same

  • 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!!


9 5 depreciation

  • 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


B declining balance

  • Declining Balance –

  • Eg. Auto- 30%

Government %, pg. 345 in text

+ 4 200

+ 2 940

+ 2 058

B) Declining Balance

+ 1 440.60


9 5 depreciation

  • 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


9 5 depreciation

  • Dec 31, 2008 (year 3)

Depreciation Expense- Auto 2 940

Accumulated Deprecation- auto 2 940


9 5 depreciation

  • Answer the following:

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

      • $13 140

  • How much depreciation was used up in year 3?

    • 2 940 (expense)


  • 9 5 depreciation

    • 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


    Let s try it

    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)

    Let’s Try it!


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