1. Fixed asset and Depreciation Methods 固定资产和折旧方法
Supplement I
Fixed asset and Depreciation Methods
固定资产和折旧方法 2

2. Classification of Assets
Current Assets(流动资产) are assets which can be
converted into Cash or consumed within one year or the
normal Operating cycle of the business
Fixed Assets (固定资产)or long-term assets ,refer to
those relatively long-lived assets which are held by a
business for use in its operation

3. Major Categories of Fixed Assets

4. Depreciation Method of Plant Asset
Straight-line method
直线法
Sum- of-the- years’-digits method
年数总和法
Double-declining-balance Method
双倍余额递减法

5. Depreciation Book Value帐面净值 Cost - Accumulated Depreciation
Represents the portion of an asset’s
cost that has already been allocated to expense.
Book value of last year =salvage
value

6. Sum-of-the-Years’-Digits Method
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
the years in reverse order
The sum of number of years

7. Sum-of-the-Year-Digits Example
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the Sum-of-Years-Digits method.

8. Sum-of-the-Year-Digits Example
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the Sum-of-the-Year-Digits method.
2005 Dep expense=( Cost - Residual Value )*Dep Rate of 2005
=( )*5/15
=7000

9. Sum-of-the-Year-Digits Example
Compute depreciation for the rest of the boat’s estimated useful life.

10. Sum-of-the-Years-Digits Balance Graph of Depreciation Expense

11. Accelerated Method
Example on textbook ,p78

12. Double-Declining Balance Example
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
The double-declining balance accelerated depreciation rate is 200% of the straight-line depreciation rate of 1/Useful Life.

13. The book value at the beginning of the year
Double-Declining Balance Example
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
The book value at the beginning of the year

14. Double-Declining Balance Example
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the double-declining balance method.

15. Double-Declining Balance Example
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the double-declining balance method.

16. Double-Declining Balance Example
Compute depreciation for the rest of the boat’s estimated useful life.

17. Double-Declining Balance Example
Compute depreciation for the rest of the boat’s estimated useful life.

18. Double-Declining Balance Example
Compute depreciation for the rest of the boat’s estimated useful life.

19. Double-Declining Balance Example
Total depreciation over the estimated useful life of an asset is the same using either the straight-line method or the declining-balance method.

20. Double-Declining Balance Graph of Depreciation Expense

21. Accelerated Method
Example on textbook,p79

22. Double-Declining Balance Example
Compute depreciation for the equipment.

23. Double-Declining Balance Example
Compute depreciation for the equipment.

24. Exercise
Jon Seceda furnace Corp. purchased machinery for $ 50,000 at the beginning of the year 1.It is estimated that it will have a useful life of 5 years , residual value of $5000.compute the depreciation under the each of the following method (round to two decimal places)
Sum-of-years’-digits
Double-declining balance

25. Sum-of-the-Year-Digits Example

26. Double-Declining Balance Example

27. Exercise
Jon SECEDA furnace corp. purchased machinery for $315,000 on April 1,2004. It is estimated that it will have a useful life of 10 years , scrap value of $ 15000
From the information given , compute the depreciation charge in 2004 under each of the following method( round to three decimal places)
straight-line
sum-of-years’-digits
Double-decline balance

28. Exercise
[( ) ×1/10] ×9/12=22500
[( )×10/55]×9/12=
[(315000×2/10] ×9/12=47250

29. Depreciation Book Value帐面净值 Market Value/ fair Value 市场价值 /公允价值
the price which the assets are exchanged in the market
Book Value =Market Value

30. assignment
Problems 2 ( p 81)
Problems 1 ( p 80)