Jessica Brooks just slept through the class in which Professor Dominguez explained the concept of depreciation. Because
Question:
Jessica Brooks just slept through the class in which Professor Dominguez explained the concept of depreciation. Because the next test is scheduled for Wednesday, Jessica Brooks telephones Hanna Svensen to get her notes from the lecture. Hanna Svensen’s notes are concise: “Depreciation—Sounds like Greek to me.” Jessica Brooks next tries Tim Lake, who says he thinks depreciation is what happens when an asset wears out. David Coe is confident that depreciation is the process of building up a cash fund to replace an asset at the end of its useful life. Explain the concept of depreciation for Jessica Brooks. Evaluate the explanations of Tim Lake and David Coe. Be specific.
Step by Step Answer:
Depreciation is the process of allocating a plant assets cost to expens...View the full answer
Financial Accounting
ISBN: 978-0132889711
1st Canadian Edition
Authors: Jeffrey Waybright, Liang Hsuan Chen, Rhonda Pyper
Related Video
Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.
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