Depreciation: How to Expense Long Term Assets

The video tutorial explains how to expense long-term assets using depreciation in accounting. It covers the process of allocating the cost of plant assets over their useful life, following the matching principles. The tutorial highlights three key factors needed to compute depreciation: total asset cost, salvage value, and useful life. It also introduces three common methods of depreciation: straight line, units of production, and declining balance, each with varying complexity.

What is the primary purpose of depreciation in accounting?

• To determine the resale value of an asset

• To allocate the cost of a long-term asset over its useful life

• To calculate the market value of an asset

• To increase the value of an asset over time

Which of the following is NOT a factor needed to compute depreciation?

• Total asset cost

• Salvage value

• Market demand

• Useful life

What does the salvage value represent in the context of depreciation?

• The initial purchase price of the asset

• The annual depreciation expense

• The estimated value of the asset at the end of its useful life

• The total cost of maintaining the asset

Which depreciation method is considered the easiest to apply?

• Units of production method

• Sum of the years' digits method

• Declining balance method

• Straight line method

How many steps are involved in the declining balance method of depreciation?

• Two steps

• One step

• Four steps

• Three steps