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LESSON 14-5

LESSON 14-5. Planning and Recording Depreciation Adjustments. Types of Assets. Current assets are cash and other assets expected to be exchanged for cash or consumed within a year. Plant assets are assets that will be used for a number of years in the operation of a business. Equipment

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LESSON 14-5

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  1. LESSON 14-5 Planning and Recording Depreciation Adjustments

  2. Types of Assets • Current assets are cash and other assets expected to be exchanged for cash or consumed within a year. • Plant assets are assets that will be used for a number of years in the operation of a business. • Equipment • Buildings • Land LESSON 14-5

  3. Because assets are used to operate a business, the expense of using the asset needs to be documented as a depreciation expense. • To calculate depreciation costs you must know the following: • Original cost • Estimated salvage value is the amount expected to be received at the time the asset is sold. • Estimated useful life is the total amount of depreciation distributed over the useful life of the asset. LESSON 14-5

  4. OriginalCost Estimated TotalDepreciationExpense – ÷ EstimatedSalvage Value Years ofEstimatedUseful Life = = AnnualDepreciationExpense Estimated TotalDepreciationExpense CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE page 424 (continued on next slide) 1. Subtract the asset’s estimated salvage value from original cost. 2. Divide the estimated total depreciation expense by the years of estimated useful life. 1 $1,250.00 – $250.00 = $1,000.00 2 $1,000.00 ÷ 5 = $200.00 LESSON 14-5

  5. 20X2AccumulatedDepreciation Original Cost + – 20X3DepreciationExpense AccumulatedDepreciation = = 20X3AccumulatedDepreciation EndingBook Value CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE page 424 (continued from previous slide) $400.00 + $200.00 = $600.00 $1,250.00 – $600.00 = $650.00 LESSON 14-5

  6. 14-5 Work Together (Wkbk p 378 Text p 426) 14-5 Work Together (Wkbk p 378 Text p 426) #1: Calculate depreciation expense for a computer printer costing $1,600, estimated salvage value is $100, useful life is 5 years. Original cost: $1,600 Estimated salvage value: - $100 Estimated Total Depreciation Expense $1,500 $1,500 / 5 years of useful life = $300 annual Depr. Exp. LESSON 14-5

  7. 14-5 Work Together (Wkbk p 378 Text p 426) #2: Calculate the book value of the computer printer at the end of its second year of service. Original Cost: $1,600 Depreciation year #1 $300 year #2 + $300 - $600 Book value: $1,000 LESSON 14-5

  8. 3 3 ANALYZING AND RECORDING ADJUSTMENTS FOR DEPRECIATION EXPENSE page 425 2 1 1. Write the debit amounts. 2. Write the credit amounts. 3. Label the adjustments. LESSON 14-5

  9. 14-5 Work Together LESSON 14-5

  10. 14-6 Row #50 Totals LESSON 14-5

  11. Accumulated depreciation is the amount of depreciation recorded each year since the purchase of the asset. • Book value of a plant asset is the original cost of the asset minus accumulated depreciation. • AKA what the asset is worth right now LESSON 14-5

  12. Straight-Line Depreciation • Straight-line depreciation is charging the same amount of depreciation for an asset each year. LESSON 14-5

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