CHAPTER 11 Flashcards
Terms and important equations or statements from chapter 11
Service life
Estimated use that the company expects to receive from the asset (time).
Allocation base
The value of usefulness that is expected to be consumed.
Allocation method
The pattern in which the usefulness is expected to be consumed.
ALLOCATION BASE =
INITIAL ASSET VALUE - RESIDUAL VALUE
Time base method
The allocation base is according to the passage of time.
Activity base method
The allocation base is according to the input/output of an asset.
Time-based depreciation methods (3)
- Straight line method
- Accelerated method
- Declining balance method
Straight line method
Allocated an equal amount of deprecable base to each year of the asset life.
Accelerated method
Declining pattern of depreciation, with higher depreciation in the early years of the asset life and lower depreciation in later years.
Sum of the years
Multiplies depreciable base by a declining fraction
Declining balance method
Multiples beginning-of-year book value by an annual rate that is a multiple of the SL rate.
Units of production method
Computes a depreciation rate per measure of activity and then multiplies this rate by actual activity to determine periodic depreciation.
STRAIGHT LINE ANNUAL DEPR.
(PURCHASE PRICE - ANTICIPATED RISUDAL VALUE) / NUMBER OF YEARS
SUM OF YEARS =
( n ( n + 1 ) ) / 2
DEPRECIATION =
DEP. BASE X ( x / SUM OF YEARS)
