Depreciation Methods and Calculations

The video tutorial covers three basic depreciation methods: straight-line, sum of years digits, and declining balance. It uses an example of equipment purchase to explain each method. The straight-line method involves dividing the cost minus salvage value by the service life. The sum of years digits method uses a fraction based on remaining life and total years. The declining balance method applies a constant rate, often a multiple of the straight-line rate, without deducting salvage value initially. Each method's impact on book value over time is demonstrated.

Which of the following is NOT a basic depreciation method discussed in the video?

• Straight-line method

• Sum of years digits method

• Double declining balance method

• Units of production method

What is the purchase cost of the equipment used in the example?

• $304,000

• $232,000

• $316,000

• $288,000

How long is the service life of the equipment in the example?

• 12 years

• 10 years

• 8 years

• 5 years

What is the estimated salvage value of the equipment?

• $76,000

• $36,000

• $64,000

• $16,000

In the straight-line method, how is the annual depreciation expense calculated?

• Cost minus salvage value divided by service life

• Cost minus salvage value

• Cost divided by service life

• Cost times service life

What is the annual depreciation expense using the straight-line method in the example?

• $16,000

• $64,000

• $36,000

• $76,000

What is the book value at the end of year one using the straight-line method?

• $268,000

• $232,000

• $240,000

• $184,000

In the sum of years digits method, what is the denominator for the depreciation fraction?

• 72

• 36

• 28

• 8

How is the sum of years calculated in the sum of years digits method?

• n plus (n + 1) divided by 2

• n times (n - 1) divided by 2

• n plus (n - 1) divided by 2

• n times (n + 1) divided by 2

What is the depreciation expense for year one using the sum of years digits method?

• $36,000

• $56,000

• $64,000

• $76,000