Accounting 2- Depreciation

What is depreciation?

• The increase in value of an asset over time.

• The process of allocating the cost of a tangible asset over its useful life.

• The cash value received when selling an asset.

• A financial gain that occurs when an asset is sold for more than its book value.

How does depreciation relate to GAAP (Generally Accepted Accounting Principles)?

• Depreciation is not recognized under GAAP.

• GAAP requires that all assets be depreciated using the same method.

•  Depreciation is recognized as an expense in accordance with the matching principle under GAAP.

• Depreciation under GAAP is only applicable for tax purposes.

How does depreciation relate to the matching principle?

• It ensures that expenses are recorded in the same period as the revenues they help to generate.

• It matches expenses with expenses from previous financial periods.

• It matches revenues with the expected future expenses.

• It is unrelated to the matching principle.

What is the procedure for calculating depreciation using the straight-line method?

• Deduct salvage value from the original cost and divide by the useful life of the asset.

• Multiply the original cost by the depreciation rate.

• Calculate the difference between the original cost and the market value at the end of each year. 

  
  

• Depreciate the asset fully in the first year.

How do you use the straight-line method to identify the original cost of an asset?

•  Subtract the salvage value from the useful life.

• Multiply the annual depreciation expense by the useful life. 

• Add the annual depreciation expense to the salvage value.

• Use the purchase price of the asset. 

How do you determine the salvage value using the straight-line method?

• It's always zero at the end of the asset's life.

• Estimate the residual value of the asset at the end of its useful life.

•  Multiply the original cost by the depreciation rate.

• Divide the original cost by the useful life.

How do you determine the useful life of an asset using the straight-line method?

• It is determined by dividing the original cost by the annual depreciation.

•  It is estimated based on the expected period the asset will be used in operations.

• It is calculated as twice the salvage value.

• It is the difference between the original cost and the salvage value.

What is the formula for calculating depreciation using the straight-line method?

• (Original cost + salvage value) / useful life

•  (Original cost x salvage value) / useful life

• (Original cost - salvage value) / useful life

• (Original cost - useful life) / salvage value

Calculate the annual depreciation for an asset with an original cost of  $10,000, a Salvage value of $2000, and a useful life of 4 years using the straight-line method.

• $500

• $1000

• $2000

• $2500

Calculate the depreciation expense for an asset with an original cost of $15,000, salvage value of $3000 and a useful life of 5 years using the straight-line method.

• $800

• $1600

• $2400

• $3200