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 of the following factors determine the amount of depreciation recorded for a fixed asset?

Market value of the asset and current interest rates

Amount of cash on hand at year-end

Cost of the asset, estimated useful life, and estimated residual value

Number of employees using the asset

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of a fixed asset over its useful life. It reflects the wear and tear, obsolescence, or usage of the asset.

Identify the key factors that determine depreciation: These include the cost of the asset (its purchase price), the estimated useful life (how long the asset is expected to be used), and the estimated residual value (the expected value of the asset at the end of its useful life).

Recognize that market value and current interest rates are not relevant to calculating depreciation. Depreciation is based on the asset's cost and its expected usage, not external market conditions.

Understand that the amount of cash on hand at year-end and the number of employees using the asset are also irrelevant to depreciation calculations. These factors do not impact the systematic allocation of the asset's cost.

Conclude that the correct factors for determining depreciation are the cost of the asset, its estimated useful life, and its estimated residual value. These are the foundational elements used in depreciation methods such as straight-line or declining balance.