Basic depreciation for high school students

1. (about 33 slides) Plant Assets and Depreciation

2. PLANT ASSETS

6. Land

7. Land Improvements

8. Buildings (any permanent structure)

9. Equipment

11. GAAP Cost Principle An asset must be carried on the balance sheet at the amount paid for it. The cost of an asset equals the sum of all of the costs incurred to bring the asset to its intended purpose.

20. PLANT ASSETS

21. Example Truck 30,000 If you buy a company truck for cash in the beginning of 2011, you would record the transaction like this: Cash 30,000

22. Example Truck 30,000 At the end of 2011, your truck has gone down in value, but the ledger still say it’s worth $30,000

23. Example Truck 30,000 At the end of 2011, your truck has gone down in value, but the ledger still say it’s worth $30,000 We need the ledger value to match the real value.

24. 4 GAAP Approved Depreciation Methods

25. 4 GAAP Approved Depreciation Methods Straight-Line (SL) Units-of-Production (UOP) Double-Declining-Balance (DDB) Sum-of-the-Year’s-Digits (SYD)

26. Straight-Line Method Example (Cost – Salvage value) = Depreciation per year years of useful life

27. Straight-Line Method Example (Cost – Salvage value) = Depreciation per year years of useful life (30,000 – 500) = $5,900 5

28. Straight-Line Method Example (Cost – Salvage value) = Depreciation per year years of useful life (30,000 – 500) = $5,900 5

30. Journalize Depreciation Accumulated Depreciation, Truck Depreciation Expense, Truck 5,900 5,900 New Asset Account (Contra Account) Truck 30,000

31. UNITS-OF-PRODUCTION Cost – Salvage Value Total Units of Activity = Cost per Unit

32. UNITS-OF-PRODUCTION Cost – Salvage Value Total Units of Activity = Cost per Unit $30,000 - $500 100,000 miles = 29.5¢ per mile