Accounting
Accounting
27th Edition
ISBN: 9781337272094
Author: WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher: Cengage Learning,
Question
Chapter 10, Problem 10.6CP
To determine

Methods of Depreciation: Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear, or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life.

The three methods of depreciation are:

  • Straight-line method: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.
  • Units-of-activity method: In this method of depreciation, the amount of depreciation is charged based on the unit of production each year.
  • Double-declining balance method (Accelerated method): In this method of depreciation, the diminishing value of the asset is taken into consideration for determining the depreciation for the succeeding years.

To Respond – Mr. N and Ms. S regarding the maintenance of two set of books, one for tax purposes and another for financial statement purposes.

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Depreciation is the reduction in the usable value of fixed assets due to normal wear and tear of time. Depreciation is an indirect non – cash expenditure which is provided on SLM or WDV basis. Rahul is new junior accountant with Hard Work Mills Private Limited he wants to understand normal depreciation differs from additional depreciation. As a tax adviser, guide him on the two concepts and discus the cases where additional depreciation is not allowed
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Chapter 10 Solutions

Accounting

Ch. 10 - Straight-line depreciation A building acquired at...Ch. 10 - Straight-line depreciation Equipment acquired at...Ch. 10 - Units-of-activity depreciation A truck acquired at...Ch. 10 - Units-of-activity depreciation A tractor acquired...Ch. 10 - Double declining-balance depreciation A building...Ch. 10 - Double-declining-balance depreciation Equipment...Ch. 10 - Revision of depreciation Equipment with a cost of...Ch. 10 - Revision of depreciation A truck with a cost of...Ch. 10 - Capital and revenue expenditures On February 14,...Ch. 10 - Capital and revenue expenditures On August 7,...Ch. 10 - Sale of equipment Equipment was acquired at the...Ch. 10 - Sale of equipment Equipment was acquired at the...Ch. 10 - Prob. 10.7APECh. 10 - Prob. 10.7BPECh. 10 - Prob. 10.8APECh. 10 - Prob. 10.8BPECh. 10 - Fixed asset turnover ratio Financial statement...Ch. 10 - Fixed asset turnover ratio Financial statement...Ch. 10 - Costs of acquiring fixed assets Melinda Stoffers...Ch. 10 - Prob. 10.2EXCh. 10 - Prob. 10.3EXCh. 10 - Nature of depreciation Tri-City Ironworks Co....Ch. 10 - Straight-line depreciation rates Convert each of...Ch. 10 - Straight-line depreciation A refrigerator used by...Ch. 10 - Depreciation by units-of-activity method A...Ch. 10 - Depreciation by units-of-activity method Prior to...Ch. 10 - Depreciation by two methods A Kubota tractor...Ch. 10 - Depreciation by two methods A storage tank...Ch. 10 - Partial-year depreciation Equipment acquired at a...Ch. 10 - Revision of depreciation A building with a cost of...Ch. 10 - Capital and revenue expenditures US Freight Lines...Ch. 10 - Prob. 10.14EXCh. 10 - Capital and revenue expenditures Quality Move...Ch. 10 - Capital expenditure and depreciation; parital-year...Ch. 10 - Entries for sale of fixed asset Equipment acquired...Ch. 10 - Disposal of fixed asset Equipment acquired on...Ch. 10 - Prob. 10.19EXCh. 10 - Amortization entries Kleen Company acquired patent...Ch. 10 - Book value of fixed assets Apple Inc. designs,...Ch. 10 - Balance sheet presentation List the errors you...Ch. 10 - Fixed asset turnover ratio Amazon.com, Inc. is the...Ch. 10 - Fixed asset turnover ratio Verizon Communications...Ch. 10 - Fixed asset turnover ratio FedEx Corporation and...Ch. 10 - Fixed asset turnover ratio The following table...Ch. 10 - Asset traded for similar asset A printing press...Ch. 10 - Prob. 10.28EXCh. 10 - Entries for trade of fixed asset On July 1, Twin...Ch. 10 - Entries for trade of fixed asset On October 1,...Ch. 10 - Allocating payments and receipts to fixed asset...Ch. 10 - Comparing three depreciation methods Dexter...Ch. 10 - Depreciation by three methods; partial years...Ch. 10 - Depreciation by two methods; sale of fixed asset...Ch. 10 - Transactions for fixed assets, including sale The...Ch. 10 - Amortization and depletion entries Data related to...Ch. 10 - Allocating payments and receipts to fixed asset...Ch. 10 - Comparing three depreciation methods Waylander...Ch. 10 - Depreciation by three methods; partial years...Ch. 10 - Depreciation by two methods; sale of fixed asset...Ch. 10 - Transactions for fixed assets, including sale The...Ch. 10 - Amortization and depletion entries Data related to...Ch. 10 - Ethics in Action Hard Bodies Co. is a fitness...Ch. 10 - Prob. 10.2CPCh. 10 - Communication Godwin Co. owns three delivery...Ch. 10 - Prob. 10.6CP
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Similar questions
  • S (Presentation of Property, Plant, and Equipment) Carol Keene, corporate comptroller for Dumaine Industries, is trying to decide how to present “Property, plant, and equipment” in the balance sheet. She realizes that thestatement of cash flows will show that the company made a significant investment in purchasing new equipment this year, but overall she knows the company’s plant assets are rather old. She feels that she can disclose one figure titled “Property, plant, and equipment, net of depreciation,” and the result will be a low figure. However, it will not disclose the age of the assets. If she chooses to show the cost less accumulated depreciation, the age of the assets will be apparent. She proposes the following. Check the following  image InstructionsAnswer the following questions.(a) What are the ethical issues involved?(b) What should Keene do?
    Discuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting?
    1. When the useful life of an asset is more accurately defined in terms of how much it is used rather than the passage of time, the _____ method is used to calculate depreciation. A. straight-line B. sum-of-the-years' digits     C. units-of-production D. declining-balance   2.The name given to tax rules for getting back or recovering through depreciation deductions the cost of property used in a trade or business, or to produce income is known as the _____ Accelerated Cost Recovery System. A. Municipal B. Modified     C. Minimum D. Maximum
  • Many companies use an accelerated depreciation method because: A. It is required by the tax code.B. It is required by financial reporting rules.C. It yields larger depreciation expense in the early years of an asset's life.D. It yields a higher income in the early years of the asset's useful life.E. The results are identical to straight-line depreciation.
    The Cost Principle, is an important measurement principle which is used in accounting. Describe the cost principle and discuss what happens if an asset like land has an increase in the fair value. How would the company report the land?   Describe the fair value principle and for what types of assets is the fair value principle used. Which measurement principle (cost or fair value) do companies use to record most assets?   Example question: Eve Myles Travel Agency purchased land for $90,000 cash on December 1, 2012. On December 31, 2012, the land's value had increased to $95,000. What amount should be reported for land on Eve's balance sheet on December 31, 2012?
    As explained in this chapter, accounting theory allows firms to choose a depreciation method from several equally acceptable alternatives to allocate the cost of a long-term asset to expense over the useful life of the asset. In practice, however, most organizations use the straight-line method of depreciation for financial statement presentation and the Modified Accelerated Cost Recovery System (MACRS) for tax reporting purposes because the Internal Revenue Code allows firms to use an accelerated depreciation method on their tax returns, instead of the straight-line method they report under GAAP. Discuss why a company would choose to use straight-line deprecation for financial reporting purposes and an accelerated method for tax purposes. Speculate on why the tax code might allow firms to accelerate depreciation for investments in productive resources.
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