3/10/2017 DepreciationMethods,Accounting

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DepreciationMethods

GAAP

Depreciationisasystematicandrationalprocessofdistributingthecostoftangibleassetsoverthelifeofassets.
Depreciationisaprocessofallocation.
Costtobeallocated=acquisitioncotsalvagevalue
Allocatedovertheestimatedusefullifeofassets.
Allocationmethodshouldbesystematicandrational.

DepreciationMethods

Depreciationmethodsbasedontime
Straightlinemethod
Decliningbalancemethod
Sumoftheyears'digitsmethod

Depreciationbasedonuse(activity)


StraightLineDepreciationMethod

Depreciation=(CostResidualvalue)/Usefullife

[Example,Straightlinedepreciation]

OnApril1,2011,CompanyApurchasedanequipmentatthecostof$140,000.Thisequipmentisestimatedto
have5yearusefullife.Attheendofthe5thyear,thesalvagevalue(residualvalue)willbe$20,000.CompanyA
recognizesdepreciationtothenearestwholemonth.Calculatethedepreciationexpensesfor2011,2012and2013
usingstraightlinedepreciationmethod.

Depreciationfor2011
=($140,000$20,000)x1/5x9/12=$18,000

Depreciationfor2012
=($140,000$20,000)x1/5x12/12=$24,000

Depreciationfor2013
=($140,000$20,000)x1/5x12/12=$24,000

DecliningBalanceDepreciationMethod

Depreciation=BookvaluexDepreciationrate
Bookvalue=CostAccumulateddepreciation

Depreciationratefordoubledecliningbalancemethod
=Straightlinedepreciationratex200%

Depreciationratefor150%decliningbalancemethod
=Straightlinedepreciationratex150%

[Example,Doubledecliningbalancedepreciation]

OnApril1,2011,CompanyApurchasedanequipmentatthecostof$140,000.Thisequipmentisestimatedto

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have5yearusefullife.Attheendofthe5thyear,thesalvagevalue(residualvalue)willbe$20,000.CompanyA
recognizesdepreciationtothenearestwholemonth.Calculatethedepreciationexpensesfor2011,2012and2013
usingdoubledecliningbalancedepreciationmethod.

Usefullife=5years>Straightlinedepreciationrate=1/5=20%peryear

Depreciationratefordoubledecliningbalancemethod
=20%x200%=20%x2=40%peryear

Depreciationfor2011
=$140,000x40%x9/12=$42,000

Depreciationfor2012
=($140,000$42,000)x40%x12/12=$39,200

Depreciationfor2013
=($140,000$42,000$39,200)x40%x12/12=$23,520

DoubleDecliningBalanceDepreciationMethod

BookValue BookValueatthe
Year DepreciationRate DepreciationExpense
atthebeginning yearend
2011 $140,000 40% $42,000(*1) $98,000
2012 $98,000 40% $39,200(*2) $58,800
2013 $58,800 40% $23,520(*3) $35,280
2014 $35,280 40% $14,112(*4) $21,168
2015 $21,168 40% $1,168(*5) $20,000

(*1)$140,000x40%x9/12=$42,000
(*2)$98,000x40%x12/12=$39,200
(*3)$58,800x40%x12/12=$23,520
(*4)$35,280x40%x12/12=$14,112
(*5)$21,168x40%x12/12=$8,467

>Depreciationfor2015is$1,168tokeepbookvaluesameassalvagevalue.
>$21,168$20,000=$1,168(Atthispoint,depreciationstops.)

[Example,150%decliningbalancedepreciation]

OnApril1,2011,CompanyApurchasedanequipmentatthecostof$140,000.Thisequipmentisestimatedto
have5yearusefullife.Attheendofthe5thyear,thesalvagevalue(residualvalue)willbe$20,000.CompanyA
recognizesdepreciationtothenearestwholemonth.Calculatethedepreciationexpensesfor2011,2012and2013
usingdoubledecliningbalancedepreciationmethod.

Usefullife=5years>Straightlinedepreciationrate=1/5=20%peryear

Depreciationratefordoubledecliningbalancemethod
=20%x150%=20%x1.5=30%peryear

Depreciationfor2011
=$140,000x30%x9/12=$31,500

Depreciationfor2012
=($140,000$31,500)x30%x12/12=$32,550

Depreciationfor2013
=($140,000$31,500$32,550)x30%x12/12=$22,785

150%DecliningBalanceDepreciationMethod

BookValue BookValueatthe
Year DepreciationRate DepreciationExpense
atthebeginning yearend

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2011 $140,000 30% $31,500(*1) $108,500
2012 $108,500 30% $32,550(*2) $75,950
2013 $75.950 30% $22,785(*3) $53,165
2014 $53,165 30% $15,950(*4) $37,216
2015 $37,216 30% $11,165(*5) $26,051
2016 $26,051 30% $6,051(*6) $20,000

(*1)$140,000x30%x9/12=$31,500
(*2)$108,500x30%x12/12=$32,550
(*3)$75,950x30%x12/12=$22,785
(*4)$53,165x30%x12/12=$15,950
(*5)$37,216x30%x12/12=$11,165
(*6)$26,051x30%x12/12=$7,815

>Depreciationfor2016is$6,051tokeepbookvaluesameassalvagevalue.
>$26,051$20,000=$6,051(Atthispoint,depreciationstops.)

Sumoftheyears'digitsmethod

Depreciationexpense=(CostSalvagevalue)xFraction
Fractionforthefirstyear=n/(1+2+3+...+n)
Fractionforthesecondyear=(n1)/(1+2+3+...+n)
Fractionforthethirdyear=(n2)/(1+2+3+...+n)
...
Fractionforthelastyear=1/(1+2+3+...+n)

nrepresentsthenumberofyearsforusefullife.

[Example,Sumoftheyearsdigitsmethod]

CompanyApurchasedthefollowingassetonJanuary1,2011.
WhatistheamountofdepreciationexpensefortheyearendedDecember31,2011?
Acquisitioncostoftheasset>$100,000
Usefullifeoftheasset>5years
Residualvalue(orsalvagevalue)attheendofusefullife>$10,000
Depreciationmethod>sumoftheyears'digitsmethod

Calculationofdepreciationexpense
Sumoftheyears'digits=1+2+3+4+5=15
Depreciationfor2011=($100,000$10,000)x5/15=$30,000
Depreciationfor2012=($100,000$10,000)x4/15=$24,000
Depreciationfor2013=($100,000$10,000)x3/15=$18,000
Depreciationfor2014=($100,000$10,000)x2/15=$12,000
Depreciationfor2015=($100,000$10,000)x1/15=$6,000

Sumoftheyears'digitsfornyears
=1+2+3+......+(n1)+n=(n+1)x(n/2)

Sumoftheyears'digitsfor500years
=1+2+3+......+499+500
=(500+1)x(500/2)=(501x500)/2=125,250

DepreciationExample1

ReviewofAccountingTopics

AccountingChangesandErrorCorrections,ASC250
AccountingEquation
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AccountingJournalEntries
AccountsReceivable
AccrualBasisAccounting
AccrualsandDeferrals
AdjustingEntries
AssetRetirementandEnvironmentalObligations,ASC410
AssumptionsofFinancialReporting
BalanceSheet,ASC210
BankReconciliation
CapitalizedAdvertisingCosts,ASC340
CashandCashEquivalents
CharacteristicsofUsefulInformation
ClassificationofAssets
ClassificationofInventory
ClassificationofLiabilities
ClassifiedBalanceSheet
ClassifiedBalanceSheetPractice
ClosingJournalEntries
CodificationofU.S.GAAP,ASC105
Compensation:StockCompensation,ASC718
ComponentsofStockholders'Equity
ComprehensiveIncome,ASC220
Contingencies,ASC450
CostFlowAssumptions
CostMethodInvestments,ASC325
CostofInventory
DebitsandCredits
DefinedBenefitPlans:Pension,ASC715
DepreciationMethods
DisposalofProperty,PlantandEquipment
DistinguishingLiabilitiesfromEquity,ASC480
EarningsperShare,ASC260
ElementsofBalanceSheet
ElementsofFinancialStatements
ElementsofIncomeStatement
EquityMethod,ASC323
ExitorDisposalCostObligations,ASC420
ExtraordinaryandUnusualItems,ASU201501
FormsofBusinessOrganizations
GainContingencies,ASC450
GenerallyAcceptedAccountingPrinciples(GAAP)
GenerallyAcceptedAccountingPrinciples,ASC105
GoodwillandOther,ASC350
IAS1PresentationofFinancialStatements,Overview
IAS1PresentationofFinancialStatements,Review
IAS1PresentationofFinancialStatements,U.S.GAAPComparison
IAS2Inventories,Overview
IAS2Inventories,Review
IAS2Inventories,U.S.GAAPComparison
IAS7StatementofCashFlows,Review
IAS7StatementofCashFlows,U.S.GAAPComparison
IAS8Accountingpolicies,changesinAccountingEstimatesandErrors,Overview
IAS8Accountingpolicies,changesinAccountingEstimatesandErrors,U.S.GAAPComparison
IAS8Accountingpolicies,changesinAccountingEstimatesandErrors,Review
IAS12IncomeTaxes,Overview
IAS12IncomeTaxes,Review
IAS16Property,PlantandEquipment,Overview
IAS16Property,PlantandEquipment,Review
IAS17Leases,Review
IAS18Revenue,Review
IAS19EmployeeBenefits,Review
IAS20Accountingforgovernmentgrantsanddisclosureofgovernmentassistance
IAS21Theeffectsofchangesinforeignexchangerates,Overview
IAS21Theeffectsofchangesinforeignexchangerates,Review
IAS21Theeffectsofchangesinforeignexchangerates,U.S.GAAPComparison
IAS23BorrowingCosts,Overview
IAS23BorrowingCosts,Review
IAS23BorrowingCosts,U.S.GAAPComparison
IAS24RelatedPartyDisclosures,Review
IAS26AccountingandReportingbyRetirementBenefitPlans,Review
IAS27SeparateFinancialStatements,Overview
IAS27SeparateFinancialStatements,Review
IAS27SeparateFinancialStatements,U.S.GAAPComparison
IncomeStatement,ASC225
IncomeStatement,ExtraordinaryandUnusualItems,ASC225
IntangiblesOtherthanGoodwill,ASC350

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InterimReporting,ASC270
InternalUseSoftware,ASC350
InventoryAnalysis
InventoryRecordingSystems
Inventory,ASC330
InvestmentsinDebtandEquitySecurities
Investments:DebtandEquitySecurities,ASC320
Investments:EquityMethodandJointVentures,ASC323
LiquidityandSolvencyRatios
LossContingencies,ASC450
LowerofCostorMarket(LCM)
MultipleStepIncomeStatementPractice
NetIncome
Noncurrentassets
NonoperatingIncomeandExpenses
NotesReceivable
Offsetting,ASC210
OperatingExpenses
OverviewofInvestmentsinOtherEntities,ASC320
OwnersEquityJournalEntryExample21
PresentationofFinancialStatements,ASC205
PresentationofFinancialStatements,DiscontinuedOperations,ASC205
ProfitabilityandActivityRatios
Property,plantandequipment(PP&E)
Property,PlantandEquipment,ASC360
RealEstateSales,ASC360
Receivables
ResearchandDevelopmentArrangements,ASC730
ResearchandDevelopmentCosts
ResearchandDevelopment,ASC730
RevenueRecognition,ASC605
RevenueRecognition:SECStaffAccountingBulletinTopic13,ASC605
StatementofCashFlows,ASC230
StepsofAccountingCycle
StockDividends,StockSplits,ASC505
TheObjectiveofAccounting
TransfersofSecurities:BetweenCategories,ASC320
TreasuryStock,ASC505
TypesofBusinessActivities
TypesofFinancialStatements
UsersofAccountingInformation
WebsiteDevelopmentCosts,ASC350
WherecanIfindthetextofIFRSstandards?

PrinciplesofAccounting:

Thissectionprovidesstudyguidesforstudentsintheprinciplesofaccountingcoursesorintroductiontofinancial
accountingcourses.



U.S.TaxCodebySection

InternationalFinancialReportingStandards(IFRS)
InternationalAccountingStandards(IAS)
IFRSNewsandUpdates
IFRSforSmallandMediumsizedEntities(IFRSforSMEs)

U.S.GAAPCodificationofAccountingStandards
GAAPCodificationUpdates

SourcesofU.S.GAAP
U.S.GAAPbyTopic
HierarchyofU.S.GAAP

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PrinciplesofAccountingCourseReview
IntermediateAccountingCourseReview
AdvancedAccountingCourseReview

FinancialStatements
ExamplesofFinancialStatements
BalanceSheet:Examples

RatiosforFinancialStatementAnalysis
LiquidityAnalysisRatios
ProfitabilityAnalysisRatiosActivityAnalysisRatios
CashFlowAnalysisRatios
CapitalStructureAnalysisRatios
CapitalMarketAnalysisRatios

BalanceSheet
IncomeStatement
StatementofCashFlows

BasicsofJournalEntries
AccountingJournalEntryExamples
MoreExamplesofJournalEntries

AccountingEquation
DoubleEntryRecordingofAccountingTransactions
DebitAccounts
CreditAccounts

AssetAccounts
LiabilityAccounts
EquityAccounts
RevenueAccounts
ExpenseAccounts

AccountingCycle
JournalsandLedgers
AdjustingJournalEntries
TrialBalance

AccrualBasisvs.CashBasisAccounting
AccrualBasisAccounting
CashBasisAccounting
AccrualBasisAccounting
Revenuerecognition
Expenserecognition

BankReconciliation
AccountsReceivable
InventoryAccounting
DepreciationMethods

PresentValue,FutureValue(PV,FVConversionTables)

SimpleandCompoundInterestCalculations

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50Questionson CreateyourowneBooks
AccountingJournalEntries fromiPhoneandiPad
2012EditionforiPhoneandiPad (foriBooksandKindle)

AccountingforGeneralUsers:

Aguidetoaccountingforuserswhoareinterestedinunderstandingaccountingreports.Thissectionexplainswhat
usersneedtoknowtounderstandandanalyzeaccountinginformationprovidedinthefinancialstatements.No
prerequisiteisrequiredtoreadthissection.


CPAandAccountingProfession
HowtobecomeaCertifiedPublicAccountant(CPA)

Accountingisaninformationsystem.
Usersofaccountinginformation
Financialaccountingforexternalusers
Managerialaccountingforinternalusers

ExamplesofFinancialStatements
FinancialStatementsIndex

BalanceSheet:Examples
BalanceSheet
IncomeStatement
StatementofCashFlows
StatementofStockholders'Equity

AnnualReportProjectResources

ElementsofFinancialStatements(SFACNo.6)

BalanceSheetprovidesinformationaboutfinancialpositionofacompany.
ExamplesofAssetAccounts
ExamplesofLiabilityAccounts
ExamplesofStockholders'EquityAccounts

IncomeStatementprovidesinformationabouttheperformanceofacompany.
EarningsPerShare(EPS)
RevenueRecognitionPrinciple
ExamplesofRevenueandGainAccounts
ExamplesofExpenseandLossAccounts

StatementofCashFlowsprovidesinformationaboutthecashflowofacompany.
Cashflowfromoperatingactivities
Cashflowfrominvestingactivities
Cashflowfromfinancingactivities

IntermediateAccounting:

Thissectionprovidesstudyguidesforstudentsintheintermediateaccountingcourses.Followingtopicsarediscussed
inthissection.



AccountingCoursesOnline

AccountingforCashandReceivables
Cashandbankdeposits
Accountsreceivable
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Notesreceivable
Allowancefordoubtfulaccounts
ImpairmentofaLoan

AccountingforInventories
FirstInFirstOut(FIFO)
LastInFirstOut(LIFO)
DollarValueLIFO
RetailInventoryMethod
GrossProfitMethod
LowerofCostorMarket(LCM)

InvestmentsinDebtandEquitySecurities
Tradingsecurities
Availableforsalesecurities
Debtsecurities

Property,Plant,andEquipment(PP&E)
Acquisitioncostsofnoncurrentoperatingassets
Retirementofnoncurrentoperatingassets
Capitalizationofinterestcost
ImpairmentofLongLivedAssets

GoodwillandOtherIntangibleAssets

LossandGainContingencies
ExtraordinaryGainsandLosses
DiscontinuedOperations

EarningsperShare(BasicandDilutedEPS)

DepreciationMethods
StraightLineDepreciation
DecliningBalanceMethod
SumoftheyearsdigitsMethod

AccountingforBondsPayable
Priceofbondspayable
Discountonbondspayable
Premiumonbondspayable
Amortizationofdiscountandpremium
Earlyextinguishmentofdebts

Stockholders'Equity
Commonstock
Preferredstock
Parvalue
Additionalpaidincapital
Retainedearnings
Treasurystock(Costmethod,parvaluemethod)
Dividends(Cashdividend,Stockdividend)
Stocksplit
InitialPublicOffering(IPO)
SubsequentEvents

CodeofProfessionalConductforAccountants

AdvancedAccounting:
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Thissectionprovidesstudyguidesforstudentsintheadvancedaccountingcourses.Followingtopicsarediscussedin
thissection.


ConsolidatedFinancialStatements
BusinessCombinations
AccountingforLeases

U.S.GAAPbyCodificationTopic

105GAAPHierarchy
105GAAPHistory

205PresentationofFinancialStatements
20520DiscontinuedOperations
210BalanceSheet
21020Offsetting
220ComprehensiveIncome
225IncomeStatement
22520ExtraordinaryandUnusualItems
230StatementofCashFlows
250AccountingChangesandErrorCorrections
260EarningsperShare
270InterimReporting

310ImpairmentofaLoan
320InvestmentSecurities
320OtherThanTemporaryImpairments,FSPFAS1152
3201005OverviewofInvestmentsinOtherEntities
3201035ReclassificationofInvestmentsinSecurities
32310EquityMethodInvestments
32330InvestmentsinPartnershipsandJointVentures
32520CostMethodInvestments
330Inventory

34020CapitalizedAdvertisingCosts
35020Goodwill
35030IntangiblesOtherthanGoodwill
35040InternalUseSoftware
35050WebsiteDevelopmentCosts
360Property,PlantandEquipment
36020RealEstateSales

410AssetRetirementandEnvironmentalObligations
420ExitorDisposalCostObligations
450Contingencies
45020LossContingencies
45030GainContingencies
480RedeemableFinancialInstruments

50520StockDividends,StockSplits
50530TreasuryStock

605SECStaffAccountingBulletin,Topic13
60525RevenueRecognitionMultipleElementArrangements

71530DefinedBenefitPlansPension
718ShareBasedPayment
730ResearchandDevelopment
73020ResearchandDevelopmentArrangements

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805BusinessCombinations
810Consolidation
810NoncontrollingInterests
810ConsolidationofVariableInterestEntities,SFAS167

815DerivativesandHedgingOverview

820FairValueMeasurements
820Fairvaluewhenthemarketsarenotactive,FSPFAS1574
825FairValueOption

830ForeignCurrencyMatters
83020ForeignCurrencyTransactions
83030TranslationofFinancialStatements
835Interest
83520CapitalizationofInterest
83530ImputationofInterest

840Leases
84020OperatingLeases
84030CapitalLeases
84040SaleLeasebackTransactions
845NonmonetaryTransactions

855SubsequentEvents
86020SaleofFinancialAssets,SFAS166
86050ServicingAssetsandLiabilities,SFAS156

98520Costsofsoftwaretobesold

InternationalFinancialReportingStandards(IFRS)

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