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 depreciation methods is allowed under U.S. GAAP?

Revaluation model

Sum-of-the-years'-digits method

Declining balance method

Straight-line method

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. U.S. GAAP allows specific methods for calculating depreciation.

Review the depreciation methods allowed under U.S. GAAP: The commonly accepted methods include Straight-line method, Declining balance method, and Sum-of-the-years'-digits method. The Revaluation model is not permitted under U.S. GAAP but is allowed under IFRS.

Straight-line method: This method spreads the cost of the asset evenly over its useful life. The formula is:

Depreciation = \frac{Cost - Salvage}{Useful Life}

Declining balance method: This is an accelerated depreciation method where a fixed percentage is applied to the book value of the asset each year. The formula is:

Depreciation = Rate \times Book Value

Sum-of-the-years'-digits method: This method allocates depreciation based on a fraction where the numerator is the remaining life of the asset and the denominator is the sum of the years' digits. The formula is: