DEPREcIATION.

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Presentation transcript:

DEPREcIATION

depreciation Depreciation refers to the fall in the value of fixed assets over the time

Methods of calculating depreciation Straight-line method Reducing balance method

Straight-line method This is the simplest and most used of the 2 methods. To calculate the annual rate of depreciation, 3 key variables are needed: the life expectancy of the asset, the residual value of the asset (how much it is worth at the end of its useful life) and the purchase cost of the asset. Annual depreciation= Purchase cost Lifespan

Straight-line method Exercises on page 404, 405

Straight-line method It depreciates the value of an asset by a predeterminated percentage. This percentage is used for each year. Formula: Net book value=Historical Cost-cumulative depreciation

Straight-line method Page 406

Intangible Assets Goodwill: is the value of an organization’s image and reputation. Ex: a firm that treats its workers well will be likely to see a lot of goodwill from its staff