BAF3M Calculating Depreciation II. Homework check Page 348 Exercise 1 (A,B,C) Page 358 Exercise 4 (A,B)

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Presentation transcript:

BAF3M Calculating Depreciation II

Homework check Page 348 Exercise 1 (A,B,C) Page 358 Exercise 4 (A,B)

Homework: Page 348 Exercise 1 (A,B,C)

Homework: Page 358 Exercise 4 (A,B)

The TWO main ideas on how to calculate depreciation: Straight Line Depreciation Declining Balance Depreciation

Straight Line Depreciation original cost – residual value years of life of the asset (Straight line depreciation spreads the use of our asset evenly over the amount of time it is used.)

Declining Balance Let’s say we bought a car… does it lose its value evenly?

Declining Balance With declining balance, we take off a certain percentage each year. Year 1 Depreciation = 30% * $100,000 car = $30,000

Declining Balance Year 2 Depreciation Undepreciated Value of $70,000 x 30% = $21,000

Declining Balance Let’s look at a depreciation schedule… 30% is taken off each year

Compare! (Straight Line vs. Declining Balance)

The TWO main ideas on how to calculate depreciation: Straight Line Depreciation Declining Balance Depreciation

Note Note: Depreciation With the exception of Land, all fixed assets are expected to be ‘used up’ over a certain period of time. These assets decrease (or depreciate) in value. Methods of Depreciation Straight-Line depreciation divides the price of an asset over its useful life. (minus its salvage or residual value) Declining Balance method decreases the value of an asset by a pre-determined percentage each fiscal period.

The following ‘Depreciation Schedules’ compare the two approaches. Declining Balance

Homework Page 348, Exercise 1 (D,E) Exercise 2 (A,B)