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

Why are land improvements depreciated while the land itself is not?

Land improvements are not physical assets, so they must be depreciated.

Land improvements increase the value of land, so they are expensed immediately.

Land improvements have a limited useful life, whereas land has an indefinite useful life.

Land improvements are considered inventory, while land is a fixed asset.

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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. It applies to assets that have a limited useful life, meaning they will wear out, become obsolete, or lose value over time.

Recognize the nature of land: Land is considered to have an indefinite useful life because it does not wear out or become obsolete. Therefore, it is not subject to depreciation.

Identify the characteristics of land improvements: Land improvements, such as parking lots, fences, landscaping, and lighting systems, are enhancements made to the land. These improvements have a limited useful life because they can deteriorate or require replacement over time.

Understand the accounting treatment: Since land improvements have a limited useful life, their cost is allocated over their useful life through depreciation. This ensures that the expense is matched with the revenue generated during the periods the improvements are in use.

Differentiate between land and land improvements: Land is classified as a fixed asset with an indefinite useful life, while land improvements are also fixed assets but are depreciated due to their limited useful life.