Calculate depreciation of property, plant, and equipment.

Calculate depreciation of property, plant, and equipment.


  1. __________definition = Decrease in value (or selling price) of an asset
  2. __________ definition = Allocation of an asset’s cost to an expense over time
    1. Applying the __________ rule
  3. Adjusting entry – Chapter 3, page 116
    1. Accumulated Depreciation

i.      Contra asset account

    1. ____________________________

i.      Capitalized asset less accumulated depreciation

ii.      Does not refer to market value or selling price.

  1. Service life
    1. An ________
  2. Residual value or salvage value
    1. An _____________ of value when the company expects to sell the asset as the end of its service life
    2. Usually vehicles
  3. Land never depreciated!
  4. Straight-line method
    1. Most companies use straight-line depreciation for financial reporting

Cost – Residual Value  = _______________

Depreciable cost / Service life

    1. Partial years

i.      Purchased August 16 =

ii.      Purchased August 14 =

    1. Change in depreciation estimate allowable
    2. Read Ethical dilemma, page 334
  1. Declining-balance method
    1. An accelerated method (Greater depreciation expense in early years)
    2. _________ most common of the declining-balance methods

Cost – accumulated depreciation =

Book value x (2 / service life)

Book value x double the straight-line percentage

JRS real-world easy method:  (Book value / service life) x 2

    1. Have to watch last year(s).  Cannot depreciation below the ___________________
  1. Activity-based depreciation
    1. A method based on use

Cost – Residual Value  = ___________________

Depreciation rate per unit = Depreciable cost / Total units expected to be produced

Depreciation rate per unit x # of units of activity

    1. Natural resources depletion similar
  1. MACRS used for tax reporting
    1. An accelerated method similar to double-declining-balance method.

Practice:  Chicago Style Pizza purchases a delivery van at a cost of $30,000. On the date of purchase, the company estimates the van will have a residual value of $5,000. The company expects to use the van for five years or about 100,000 miles.


Prepare a depreciation schedule using each of the following methods:

1. Straight-line.
2. Double-declining-balance.
3. Activity-based. Actual use per year was as follows:

Year Miles Used
1 22,000
2 24,000
3 18,000
4 21,000
5 20,000
Total   105,000










LO 5  Calculate amortization of intangible assets.


  1. Amortization is a process, similar to depreciation, in which we allocate the cost of intangible assets over their estimated service life.
  2. Intangible assets with an indefinite useful life (goodwill and most trademarks) are not amortized.
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