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 is the correct formula to compute annual straight-line depreciation?

\( \text{(Cost} - \text{Salvage Value)} \div \text{Useful Life} \)

\( \text{Cost} \times \text{Depreciation Rate} \)

\( \text{Cost} \div \text{Useful Life} \)

\( \text{(Cost} + \text{Salvage Value)} \div \text{Useful Life} \)

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Verified step by step guidance

Step 1: Understand the concept of straight-line depreciation. It is a method used to allocate the cost of an asset evenly over its useful life. The formula calculates the annual depreciation expense based on the asset's cost, salvage value, and useful life.

Step 2: Identify the components of the formula. The 'Cost' refers to the purchase price of the asset, 'Salvage Value' is the estimated residual value of the asset at the end of its useful life, and 'Useful Life' is the expected duration the asset will be used.

Step 3: Analyze the given formulas. The correct formula for annual straight-line depreciation is: \( \text{(Cost} - \text{Salvage Value)} \div \text{Useful Life} \). This formula subtracts the salvage value from the cost to determine the depreciable amount and divides it by the useful life to calculate the annual depreciation expense.

Step 4: Compare the other options provided. \( \text{Cost} \times \text{Depreciation Rate} \) is used for declining balance depreciation, \( \text{Cost} \div \text{Useful Life} \) ignores salvage value, and \( \text{(Cost} + \text{Salvage Value)} \div \text{Useful Life} \) incorrectly adds salvage value instead of subtracting it.

Step 5: Conclude that the correct formula for annual straight-line depreciation is \( \text{(Cost} - \text{Salvage Value)} \div \text{Useful Life} \), as it properly accounts for the depreciable amount and allocates it evenly over the asset's useful life.