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: Straight Line

Financial Accounting

8. Long Lived Assets

Depreciation: Straight Line

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Multiple Choice

Which of the following depreciation methods allocates the cost of long-term assets based solely on the passage of time?

Straight-line method

Sum-of-the-years'-digits method

Units-of-production method

Double-declining balance method

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the process of allocating the cost of a tangible asset over its useful life. Different methods exist to calculate depreciation based on various factors such as time, usage, or accelerated expense recognition.

Review the Straight-line method: This method allocates the cost of an asset evenly over its useful life. It is based solely on the passage of time and does not consider usage or other factors. The formula for annual depreciation is:

\frac{Cost − Residual Value}{Useful}

Examine the Sum-of-the-years'-digits method: This method is an accelerated depreciation method that allocates higher depreciation expense in the earlier years of an asset's life. It is not based solely on the passage of time but rather on a weighted calculation.

Analyze the Units-of-production method: This method allocates depreciation based on the actual usage or production output of the asset. It is not time-based but usage-based. The formula is:

\frac{Cost − Residual Value}{Total}

× Units Produced.

Evaluate the Double-declining balance method: This is another accelerated depreciation method that applies a higher depreciation rate in the early years of an asset's life. It is not based solely on the passage of time but rather on a percentage of the asset's book value.