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 is NOT a relevant factor in computing depreciation?

Estimated useful life of the asset

Estimated residual (salvage) value

Cost of the asset

Book value of 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 tangible asset over its useful life. It is based on factors that help estimate the asset's value reduction over time.

Identify the relevant factors in computing depreciation: These include the cost of the asset, its estimated useful life, and its estimated residual (salvage) value. These factors are used to calculate the depreciation expense using methods like straight-line, declining balance, or units of production.

Clarify why 'Book value of the asset' is not relevant: The book value of an asset is the value recorded in the accounting books after accounting for accumulated depreciation. It is not used in the initial computation of depreciation but is a result of depreciation calculations over time.

Review the formula for depreciation: For example, in the straight-line method, the formula is: \( \text{Depreciation Expense} = \frac{\text{Cost of Asset} - \text{Residual Value}}{\text{Estimated Useful Life}} \). Notice that 'Book value' is not part of this formula.

Conclude that the correct answer is 'Book value of the asset' because it is not a factor in the initial computation of depreciation but rather a derived value after depreciation is applied.