Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

8. Long Lived Assets

Depreciation: Summary of Main Methods

Financial Accounting

8. Long Lived Assets

Depreciation: Summary of Main Methods

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Multiple Choice

Which statement about depreciation is false?

Units-of-production depreciation bases expense on actual usage or output of the asset.

Depreciation increases the book value of an asset over time.

The declining balance method results in higher depreciation expense in the early years of an asset's life.

The straight-line method allocates an equal amount of depreciation expense each year over the asset's useful life.

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It does not increase the book value of an asset; instead, it reduces the book value over time as the asset is used.

Analyze the units-of-production method: This method calculates depreciation based on the actual usage or output of the asset. It is a valid method and aligns with the statement provided.

Examine the declining balance method: This method results in higher depreciation expenses in the early years of an asset's life, as it applies a fixed percentage to the book value of the asset, which decreases over time. This statement is correct.

Review the straight-line method: This method allocates an equal amount of depreciation expense each year over the asset's useful life. It is a straightforward and commonly used method, and the statement is accurate.

Identify the false statement: Depreciation does not increase the book value of an asset over time. Instead, it decreases the book value as the asset is used and its value is consumed. This statement is false and contradicts the fundamental concept of depreciation.