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 statements about depreciation is true?

Depreciation increases the book value of an asset over time.

The straight-line method allocates an equal amount of depreciation expense each year over the asset's useful life.

The declining-balance method results in increasing depreciation expense each year.

Depreciation is only recorded when an asset is sold.

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Verified step by step guidance

Step 1: Understand the concept of depreciation. Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the wear and tear, obsolescence, or usage of the asset.

Step 2: Analyze the straight-line method. The straight-line method allocates an equal amount of depreciation expense each year over the asset's useful life. This is calculated using the formula:

Depreciation = \frac{Cost - Residual Value}{Useful}

Step 3: Examine the declining-balance method. This method results in higher depreciation expense in the earlier years of the asset's life and lower depreciation expense in later years. It does not result in increasing depreciation expense each year.

Step 4: Clarify the statement about recording depreciation. Depreciation is recorded periodically (e.g., monthly or annually) during the asset's useful life, not only when the asset is sold.

Step 5: Evaluate the given statements and identify the correct one. Based on the explanations above, the correct statement is: 'The straight-line method allocates an equal amount of depreciation expense each year over the asset's useful life.'