# Accounting for Plant Assets and Depreciation

## Presentation on theme: "Accounting for Plant Assets and Depreciation"— Presentation transcript:

Accounting for Plant Assets and Depreciation
Chapter 18, Section 2 Calculating Depreciation Expense

Depreciating Plant Assets
Plant assets wear out or become technologically obsolete. CONCEPT: Matching Expenses with Revenue Depreciation Expense

Calculating Depreciation Expense
3 factors affect depreciation expense: Original Cost Estimated Salvage Value Estimated Useful Life Physical depreciation Functional depreciation

Straight-Line Depreciation
Equal amount of depreciation expense each year. Est. Total = Original – Est. Salvage Depreciation Cost Value Annual Depr. = Est. Total ÷ Years of Expense Depreciation Useful Life

Straight-line Depreciation
Lesson 21-2 (GJ) Straight-line Depreciation Calculating Annual Depreciation Expense 1. Subtract the asset’s estimated salvage value from the original cost. 2. Divide the estimated total depreciation expense by the years of estimated useful life. Estimated Salvage Value Original Cost Estimated Total Depreciation Expense = \$3,250.00 \$250.00 = \$3,000.00 1 Annual Depreciation Expense = Years of Estimated Useful Life ÷ Estimated Total Depreciation Expense \$3,000.00 ÷ 5 = \$600.00 2

Calculating Depreciation Expense for Part of a Year
Calculating Partial Year’s Depreciation Expense 1. Divide the annual depreciation expense by 12. 2. Multiply the monthly depreciation expense by the number of months the plant asset is used in a year. Months in a Year Annual Depreciation Expense Monthly Depreciation Expense = ÷ \$600.00 ÷ 12 = \$50.00 1 Partial Year’s Depreciation Expense = Number of Months Asset Is Used × Monthly Depreciation Expense \$50.00 × 5 = \$250.00 2

Calculating Accumulated Depreciation
2013 Depreciation Expense 2012 Accumulated Depreciation 2013 Accumulated Depreciation = + \$1,200.00 + \$600.00 = \$1,800.00 Calculating Book Value Accumulated Depreciation Original Cost Ending Book Value = \$3,250.00 \$1,800.00 = \$1,450.00 Annual Depreciation Beginning Book Value Ending Book Value = \$2,050.00 \$600.00 = \$1,450.00

PROBLEMS Complete the following on www.aplia.com
Work Together 18-2 (text pg.541) On Your Own 18-2 (text pg. 541) Application Problem 18-2 (text pg. 556)