Depreciation

Presented By:Hassan Jan Habib

Roll# 24

Tangible

PhysicalSubstance

Intangible

No PhysicalSubstance

Assets subject to depreciationBuildings and equipmentFurniture and fixtures

Value represented by rights that produce benefits.

Intangibles with a limited life, such as patents and copyrights, are subject to amortization.

Intangibles with an unlimited (or indefinite) life, such as goodwill and trademarks, are not amortized.

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Disclosure

Depreciation Methods

Depreciation Methods

At the beginning of the year, Habib& Co. At the beginning of the year, Habib& Co. purchased a new Machine for $62,500 cash. The purchased a new Machine for $62,500 cash. The Machine has an estimated useful life of 3 years Machine has an estimated useful life of 3 years

and an estimated residual value of $2,500.and an estimated residual value of $2,500.

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= $20,000 per year ($62,500 - $2,500) × 13

Depreciation Accumulated Accumulated UndepreciatedExpense Depreciation Depreciation Balance

Year (debit) (credit) (credit balance) (book value)62,500$

1 20,000$ 20,000$ 20,000$ 42,500 2 20,000 20,000 40,000 22,500 3 20,000 20,000 60,000 2,500

60,000$ 60,000$

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Straight Line Method

The machine has a 100,000 units estimated The machine has a 100,000 units estimated useful life. If the machine produce 30,000 Units useful life. If the machine produce 30,000 Units

in the first year, what is the amount of in the first year, what is the amount of depreciation expense?depreciation expense?

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Units of Production

Accumulated UndepreciatedDepreciation Depreciation Balance

Year Miles Expense Balance (book value)62,500$

1 30,000 18,000$ 18,000$ 44,500 2 50,000 3 20,000

100,000

Depreciation Accumulated UndepreciatedExpense Depreciation Balance

Year Units (debit) (credit balance) (book value)62,500$

1 30,000 18,000$ 18,000$ 44,500 2 50,000 30,000 48,000 14,500 3 20,000 12,000 60,000 2,500

100,000 60,000$

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Units of Production

Declining Balance Method

where N is the estimated life of the asset (for example, in years)

To Find the Rate of Depreciation

Rate Depreciation Expense

Accumulated Depreciation

Book value(62500)

40% 25000 25000 3750040% 15000 40000 9000

For tax purposes, most corporations use the Modified Accelerated Cost

Recovery System (MACRS).

MACRS depreciation provides for rapid write-off of an asset’s cost in order to

stimulate new investment.

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Tax Depreciation