- Income Statement
- Formats of Income Statements
- Principles of Revenue Recognition
- Revenue Recognition - Long-term Contracts
- Revenue Recognition - Instalment Sales
- Revenue Recognition - Barter Transactions
- Expense Recognition
- Inventory Expense Recognition
- Depreciation Expense Recognition
- Amortization Expense Recognition
- Bad Debt Expense and Warranty Expense Recognition
- Financial Reporting of Non-recurring Items
- Operating and Non-operating Components of Income Statement
- How to Calculate Basic Earnings Per Share (EPS)
- Impact of Stock Dividends and Stock Splits on Earnings Per Share (EPS)
- Diluted EPS
- Calculation of Diluted EPS (Convertible Preferred Stock)
- Calculation of Diluted EPS (Convertible Debt)
- Common Size Income Statement
- Performance Measures of a Company
- Comprehensive Income
Depreciation Expense Recognition
A company’s long-lived assets refer to PPE, natural resources, and intangible assets. Since these assets provide economic value over multiple years, the cost of these assets is allocated over multiple years.
Depreciation is the allocation of the cost of an asset to expense over its useful life in a rational and systematic manner.
There are various depreciation methods used by firms. We will look at the following three methods:
- Straight Line Method
- Accelerated Methods of Depreciation
Straight Line Method
The straight-line method associates the long-lived asset’s usefulness with its age.
Straight-Line Expense = (Cost – Salvage Value)/n
where n = number of years in asset’s useful life
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