Apply Depreciation Methods to Plant Assets

Flashcards covering key concepts related to the depreciation of plant assets, including definitions and methods.

Depreciation

The process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner.

Accumulated Depreciation

A contra asset account that represents the total amount of the asset's cost that has been charged to expense to date; it is not a cash fund.

Book Value

The value of a plant asset calculated as the cost less accumulated depreciation.

Depreciable Assets

Assets subject to depreciation, including land improvements, buildings, and equipment, but not land.

Cost Principle

The principle that plant assets are recorded at historical cost.

Useful Life

An estimate of the expected productive life of a plant asset, also known as service life.

Salvage Value

The estimated value of a plant asset at the end of its useful life.

Depreciation Methods

The methods used to compute depreciation: straight-line, declining-balance, and units-of-activity.

Straight-Line Depreciation

The most widely used method of depreciation, applied by over 95% of U.S. companies.

Declining-Balance Method

A depreciation method that allocates higher depreciation expenses in the early years of an asset's useful life.

Units-of-Activity Method

A depreciation method that bases expenses on the asset's usage or production level.