Depreciation Expense

1
Depreciation Expense

• Unit 11 continued

2
Two Methods of Calculating Depreciation Expense

1. Depreciation Expense Using Straight-line method
2. Depreciation Expense Using Declining-balance
   method

3
Straight-Line Balance Method

• the expired cost (used up) of using a fixed asset
• estimated by determining the useful life of a
  fixed asset.

4
Example

• building cost 48 000
• estimated life is 20 years
• disposal value is estimated at 10 000
• Depreciation Expense 48 000 - 10 000
• 20
• 1 900 per year

5
Depreciation Expense Using Declining-balance
method

• expired cost of using a fixed asset
• each year a fixed percentage of the declining
  balance is charged
• a greater amount of depreciation is allocated
  during the first years of an assets life
• see page 216 for rates

6
EXAMPLE

• Equipment worth 12 000 is depreciated at 20 of
  declining balance
• Year 1 12 000 20 2 400
• Year 2 (12000 - 2 400) 20 1 920
• See page 215 for years 3-5

7
Practice!

• Do Exercise 3 and 6, page 219