1. Chapter 8.4 – Adjusting for Depreciation
This decrease in value needs to be recorded as an expense for the period.
There are 2 ways to calculate depreciation

2. 1. Straight-line Method
Straight-line depreciation for one year =

3. Example of Straight-line Depreciation
A company purchased a truck for $78000 on January 1, It estimated that the truck would be used for six years and at the end of that time, it can be sold for $7800.
Depreciation =
= $
Therefore the depreciation for each of the six years the depreciation expense will be $.

4. Adjusting Entries for Depreciation
Now that you have calculated the depreciation amount, it is time to make the adjusting entry to record the amount of depreciation. We will create 2 new accounts:
11700
11700
Adjusting Entry
Adjusting Journal Entry

5. What is Accumulated Depreciation
An accumulated depreciation account is know as
Remember a contra account is one that is displayed alongside an associated account and has a balance that is opposite to the account it is associated with in this case the Truck Account.
Long-term Assets
78000 .

6. Calculating Depreciation in First Year of Asset Purchase
Straight-line Method – . Ex. A combine was purchased on August 1st, 2013 for $75,000 with a useful life of 10 years and a salvage value of $5000. Calculate the depreciation for the year-end December 31, 2013.

7. First Year Depreciation – SL
Calc: (75,000 – 5,000) / 10 = $7,000 depr./year Aug – Dec = 5 months therefore $7,000/12 months = $ depr./month $` depr. for Adj. Entry for Dec 2013: DR. Depreciation Expense – Equip $2917 CR. Accum. Depr. – Equipment $2917

8. 2. Declining Balance Method
Depreciation = Assets are given rates: Example Using the Truck from the previous example – $78,000 X - Entry is the same.
Class
Description
Rate 3
Buildings 5% 8
Furniture & Equipment
20% 10
Automobiles
30%

9. Declining Balance – 50% Rule for year asset was purchased
For declining balance method of depreciation, you not worrying about the actual month the asset was purchased. Ex. A computer was purchased on Mar 1, 20-1 for $22,000. Calculate the depr. that would be recorded on Dec 31, 20-1 & Dec 31, See rates on pg. 308.

10. Declining Balance – 50% Rule
Rate for computer equipment is 55%. $22000 X 55% = 50% Rule is applied - X 50% = $
Year
Depreciation
Balance
2011 $
$22,000 - $
= $
2012
$ X 55%

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