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    giezele ballatan
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    1) Depreciation is the allocation of the cost of a tangible asset over its useful life. It is recorded through a journal entry that debits depreciation expense and credits accumulated depreciation. 2) There are several methods for calculating depreciation including straight-line, hours worked, units produced, and sum-of-the-years' digits which allocate depreciation differently based on factors like useful life. 3) Declining balance methods like 150% declining balance allocate a higher proportion of depreciation to early years by applying a rate to the carrying amount each year.

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    1) Depreciation is the allocation of the cost of a tangible asset over its useful life. It is recorded through a journal entry that debits depreciation expense and credits accumulated depreciation. 2) There are several methods for calculating depreciation including straight-line, hours worked, units produced, and sum-of-the-years' digits which allocate depreciation differently based on factors like useful life. 3) Declining balance methods like 150% declining balance allocate a higher proportion of depreciation to early years by applying a rate to the carrying amount each year.

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    187 views21 pages

    Depreciation Exercises

    Uploaded by

    giezele ballatan
    1) Depreciation is the allocation of the cost of a tangible asset over its useful life. It is recorded through a journal entry that debits depreciation expense and credits accumulated depreciation. 2) There are several methods for calculating depreciation including straight-line, hours worked, units produced, and sum-of-the-years' digits which allocate depreciation differently based on factors like useful life. 3) Declining balance methods like 150% declining balance allocate a higher proportion of depreciation to early years by applying a rate to the carrying amount each year.

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    of 21

    Depreciation

    Exercises

    Intermediate Accounting 1
    Depreciation
    Journal Entry:
    Depreciation Expense xx
    Accumulated Depreciation xx

    Factors
    1. Depreciable Amount (DA)
    2. Residual Value (RV)
    3. Useful Life (UL)
    - Time periods, Units of Output or Service Hours
    Straight Line Method
    Annual = Cost - Residual Value
    Depreciation Useful Life
    = DA x DR

    Depreciable Amount = Cost - Residual Value


    Depreciation Rate = 1 / Useful Life
    Carrying Amount = Cost - Accumulated Depreciation
    Straight Line Method
    Annual Depreciation = (800,000 – 80,000) / 8
    Annual Depreciation = 90,000
    Depreciable Amount = 720,000
    Depreciation Rate = 1/8 = 0.125 or 12.5%
    Depreciation for 2019 = 90K x 9/12 = 67,500
    Depreciation for 2020 = 90,000
    Acc. Dep. at 12/31/20 = 157,500
    Carrying Amount = 800,000 – 67,500 – 90,000
    at 12/31/20 = 642,500
    Hours Worked Method
    Depreciation Rate = DA / Life of PPE in Hours
    Dep. Rate = 720,000 / 100,000 hrs.
    Dep. Rate = 7.20 per hour
    Dep. For 2019 = 5,000 x 7.20 = 36,000
    Dep. For 2020 = 6,000 x 7.20 = 43,200
    Acc. Dep. at 12/31/20 = 79,200
    Carrying Amount = 800,000 - 36,000 - 43,200
    at 12/31/20 = 720,800
    Units Produced Method
    Depreciation Rate = DA / Units Output
    Dep. Rate = 720,000 / 900,000 Units
    Dep. Rate = 0.80 per unit
    Dep. For 2019 = 45,000 x 0.80 = 36,000
    Dep. For 2020 = 64,000 x 0.80 = 51,200
    Acc. Dep. at 12/31/20 = 87,200
    Carrying Amount = 800,000 – 36,000 – 51,200
    at 12/31/20 = 712,800
    Sum-of-the-Years’ Digits Method
    Sum of Digits Year Fraction
    8 1st 8/36
    7 2nd 7/36
    6 3rd 6/36
    5 4th 5/36
    4 5th 4/36
    3 6th 3/36
    2 7th 2/36
    1 8th 1/36
    36
    SYD Method
    Annual Depreciation = DA x SYD Fraction
    Dep. for 1st year = 720,000 x 8/36 = 160,000
    Dep. For 2019 = 160,000 x 9/12 = 120,000
    Dep. for 2nd year = 720,000 x 7/36 = 140,000
    Dep. for 2020 = (160K x 3/12) + (140K x 9/12)
    Dep. for 2020 = 145,000
    Acc. Dep. at 12/31/20 = 265,000
    Carrying Amount = 800,000 – 120,000 – 145,000
    at 12/31/20 = 535,000
    Declining Balance Method
    Year Depreciation Carrying Amount
    0 xx
    1 xx xx
    2 xx xx
    3 xx xx
    4 xx xx
    5 xx xx
    6 xx xx
    7 xx xx
    8 xx Residual Value
    150% Declining Balance Method
    Depreciation Rate = (1/UL) x 150%
    Depreciation Rate = (0.125) x 1.50
    Depreciation Rate = 0.1875 or 18.75%
    Annual Dep. = CA x Dep. Rate
    * Cost is initially used as CA.
    Dep. for 1st year = 800,000 x 0.1875
    Dep. for 1st year = 150,000
    Dep. for 2nd year = (800K – 150K) x 0.1875
    Dep. for 2nd year = 121,875
    150% Declining Balance Method
    Year Depreciation Carrying Amount
    0 (18.75%) 800,000
    1 150,000 650,000
    2 121,875 528,125
    3 99,023 429,102
    4 80,457 348,645
    5 65,371 283,274
    6 53,114 230,160
    7 43,155 187,005
    8 107,005 80,000
    150% Declining Balance Method
    Dep. for 2019 = 150,000 x 9/12 = 112,500
    Dep. for 2020 = (150K x 3/12) + (121,875 x 9/12)
    Dep. for 2020 = 128,906
    Acc. Dep. at 12/31/20 = 241,406
    Carrying Amount = 800,000 – 112,500 – 128,960
    at 12/31/20 = 558,594
    Double Declining Balance Method
    200% Declining Balance Method

    Depreciation Rate = (1/UL) x 200%


    Depreciation Rate = (0.125) x 2
    Depreciation Rate = 0.25 or 25%
    Composite or Group Method
    Composite Depreciation Rate = Total Depreciation
    Total Cost

    Composite Life = Total Depreciable Amount


    Total Depreciation

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