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

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Presentation on theme: "Accounting for Plant Assets and Depreciation Chapter 18, Section 2 Calculating Depreciation Expense."— Presentation transcript:

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

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

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

4 Straight-Line Depreciation Equal amount of depreciation expense each year. Est. Total=Original–Est. Salvage DepreciationCostValue Annual Depr.=Est. Total ÷ Years of ExpenseDepreciationUseful Life

5 Straight-line Depreciation Estimated Salvage Value Original Cost Estimated Total Depreciation Expense =– $3, Annual Depreciation Expense = Years of Estimated Useful Life ÷ Estimated Total Depreciation Expense $ $ $3, Calculating Annual Depreciation Expense 1 =– = 5 ÷ $3, 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. 2

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

7 Calculating Accumulated Depreciation 2013 Depreciation Expense 2012 Accumulated Depreciation 2013 Accumulated Depreciation =+ $1,800.00$ $1, =+ Accumulated Depreciation Original Cost Ending Book Value =– $1,450.00$1, $3, =– Annual Depreciation Beginning Book Value Ending Book Value =– $1,450.00$ $2, =– Calculating Book Value

8 P ROBLEMS Complete the following on Work Together 18-2 (text pg.541) On Your Own 18-2 (text pg. 541) Application Problem 18-2 (text pg. 556)


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