9.5 Depreciation

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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?.

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### 9.5 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

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 Life 5 Years

20 000 - 5 000

5 years

Straight Line
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

Automobile 20 000

Bank 20 000

Depreciation Expense- Auto 3 000

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- Auto 3 000

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.- Auto 15 000

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

• 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)
Let’s Try it!