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

An asset is said to be fully depreciated when:

its book value equals its estimated salvage value.

it has been sold or disposed of.

it is no longer physically usable.

its market value drops to zero.

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of an asset over its useful life. It reflects the reduction in the value of the asset due to usage, wear and tear, or obsolescence.

Define 'fully depreciated': An asset is considered fully depreciated when its book value (the value recorded in the accounting books) equals its estimated salvage value (the expected residual value at the end of its useful life).

Clarify the term 'book value': Book value is calculated as the original cost of the asset minus the accumulated depreciation. Use the formula:

Book Value = Original Cost - Accumulated Depreciation

Explain salvage value: Salvage value is the estimated amount that an entity expects to recover from selling or disposing of an asset at the end of its useful life. It is a key component in determining the depreciation expense.

Review the options provided: The correct answer is 'its book value equals its estimated salvage value,' as this is the definition of a fully depreciated asset. The other options (sold/disposed, no longer usable, market value drops to zero) are not directly related to the accounting definition of full depreciation.