visual basic barcode generator 15: Property, Plant, and Equipment: Depreciation in Java

Creator PDF417 in Java 15: Property, Plant, and Equipment: Depreciation

CHAPTER 15: Property, Plant, and Equipment: Depreciation
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Sum-of-the-Years -Digits (SYD) The fourth method of computing depreciation is sum-of-the-years -digits. Like DDB, it is an accelerated method that allows more depreciation expense to be recorded in the early years of an asset s life and less in the later years. Like DDB, depreciation expense declines over the life of the asset, but unlike DDB, it declines by the same amount each year. To determine depreciation expense under SYD, the asset s cost (mi nus scrap value) is multiplied by a fraction. The numerator of the fraction is the years remaining in the asset s life, but in reverse order. It changes each year. The denominator is the sum of all the digits making up the life of the asset. It remains constant. For example, if a machine costs $17,000, has a scrap value of $2,000, and an estimated life of 5 years. The depreciable amount is $17,000 $2,000 = $15,000. To nd the fraction of this amount to be written off each year, proceed as follows: the numerator of the fraction for the rst year would be 5 (years in reverse). The denominator of the fraction would be 15, the sum of the year s digits (5 + 4 + 3 + 2 + 1 = 15). To determine the depreciation for the rst year, multiply $15,000 by (5/15). The cur rent year depreciation is $5,000. Partial-Year Depreciation If an asset is purchased during the year rather than at the beginning, each full year s depreciation must be allocated between the two scal years af fected to assure accurate reporting and accounting. The two scal years affected are the rst year and the nal year of depreciation.
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Once you know the four methods of depreciation, the next question is how to select the one that s most appropriate. Under generally accepted accounting principles (GAAP), businesses are encouraged to match the income an asset produces against its expense. This can be accomplished by selecting the correct depreciation method. Of the four depreciation methods discussed earlier, three are com pared in the table below. It is assumed that over a 5-year lifetime the as set was in operation for the following numbers of hours: 1,800, 1,200, 2,000, 1,400, 1,600. Cost of asset, $17,000; scrap value, $2,000.
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116 BOOKKEEPING AND ACCOUNTING
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Based upon the above table, we can conclude the following: 1. If the asset is expected to generate income evenly over an extend ed period of time, the straight-line method should be used. 2. If the asset will produce a different number of units each year, or if the machine may wear out early, the units-of-production method is preferable because it is based upon the usage rather than time. 3. If the asset is expected to generate high income in its early years, the double-declining balance method should be used because it will gen erate greater depreciation expense in its earlier years, as it can be matched with the early period s higher revenues. Like the sum-of-the-years -digits, this accelerated depreciation method reduces tax liability in the early years, making more cash available for the asset s purchase.
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1. The market value of a xed asset at the end of its service is known as a ______. 2. The uniform distribution of depreciation over the life of the asset is known as the _______ method. 3. The ______ method is used to write off the asset based on a series of fractions. 4. The method that produces the largest amount of depreciation in the earlier years, then rapidly declines, is known as the _______ method. 5. When income produced by an asset is the same each year, the rec ommended method of depreciation is ______. 6. When use rather than time is the key factor, _______ is the pre ferred method of depreciation. Answers: 1. scrap value; 2. SL; 3. SYD; 4. DDB; 5. SL; 6. UOP
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