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

The depreciation component of a lease payment is _____.

the portion of the payment that reduces the leased asset's book value over the lease term

the residual value of the leased asset at the end of the lease term

the interest expense incurred on the lease liability

the total cash paid to the lessor each period

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Verified step by step guidance

Understand the concept of depreciation in the context of a lease: Depreciation refers to the allocation of the cost of the leased asset over its useful life or lease term. It represents the reduction in the book value of the asset due to usage or passage of time.

Analyze the options provided: The correct answer should align with the definition of depreciation as the portion of the payment that reduces the leased asset's book value over the lease term.

Eliminate incorrect options: For example, 'the residual value of the leased asset at the end of the lease term' does not represent depreciation, as residual value is the estimated value of the asset at the end of the lease term. Similarly, 'the interest expense incurred on the lease liability' pertains to financing costs, not depreciation.

Focus on the correct option: The depreciation component of a lease payment is the portion of the payment that reduces the leased asset's book value over the lease term. This aligns with the definition of depreciation in accounting.

Conclude the reasoning: Depreciation is a non-cash expense that reflects the allocation of the asset's cost over time, and in the context of a lease, it is the part of the payment that reduces the asset's book value.