Chapter 8 Knowledge

Straight-Line (SL) Depreciation Expense Formula

(Cost - Salvage Value) ÷ Useful Life

Double Declining Balance (DDB) Depreciation Expense Formula

(Cost - Accumulated Depreciation) × (2 ÷ Useful Life)

Units of Production (UoP) Depreciation Rate per Unit Formula

(Cost - Salvage Value) ÷ Total Productive Capacity (in units)

Units of Production (UoP) Depreciation Expense (Year t) Formula

Depreciation Rate per Unit × Number of units used or produced in year t

Book Value (Carrying Value) Formula

Cost − Accumulated Depreciation

Gain or Loss Upon Disposal of PP&E

Selling Price − Book Value

Journal Entry for purchase of the machine (assuming paid in cash)

Debit: Machine Credit: Cash

Expense indicator words

"routine" ; "yearly" ; "repair" ; "maintenance cost"

capitalized meaning

not expensed; necessary to acquire the asset and get it ready to use.

freight cost meaning

necessary to acquire

list price meaning

actual price

installation and testing meaning

getting ready to use

Journal entry for the purchase of assets

Debit: assets listed in problem Credit: Cash

Straight-Line

same across all years

Double-Declining Balance

Starts steep, then flattens each year

Units of Production

based on activity (changes every year)

Journal Entry to record annual depreciation

Debit: Depreciation expense Credit: Accumulated Depreciation